413012024 Print Preview 1. Should Nievo make or buy the blades? 2. Explain how the ABC resource usage model helped in the analysis. Also, ‘comment on how a conventional approach would have differed Problem 17.28 Make-or-Buy, Tra nal Analysis, Qual e Considers Objective 2 - Define the concept of relevant costs and revenues.4 - Apply the tactical decision-making concepts in a variety of business situations. Apollonia Dental Services is part of an HMO that operates in a large metropolitan area. Currently, Apollonia has its own dental laboratory to produce two varieties of porcelain crowns—all porcelain and porcelain fused to metal. The unit costs to produce the crowns are as follows Porcelain Fused All Porcelain (o Metal Direct materials $190 $ 80) Direct labor 50 2 Variable overhead 25 5 Fixed overhead _60 _40 Total ixed overhead is detailed as follows: Salary (supervisor) Depreciation Rent (lab fa 22,000 Overhead is applied on the basis of direct labor hours. The rates above were computed using 8,000 direct labor hours. No significant non-unitlevel overhead costs are incurred. A local dental laboratory has offered to supply Apollonia all the crowns it needs. Its price is $265 for all-porcelain crowns and $145 for porcelain-fused- to-metal crowns; however, the offer is conditional on supplying both types of ‘crowns—it will not supply just one type for the price indicated. If the offer is accepted, the equipment used by Apollonia's laboratory would be scrapped (it is old and has no market value), and the lab facility would be closed. Apollonia uses 2,500 all-porcelain crowns and 1,000 porcelain-fused-to-metal crowns per year. hitpsng.congage. comistatcnbfuilevotindex hun! 261S8N=97813059707248id=1874562498nbId=5245498snapsholldS246498dockAppLIG=1018 altrs07021 Print Preview Required: 1. Should Apollonia continue to make its own crowns, or should they be purchased from the external supplier? What is the dollar effect of purchasing? 2, What qualitative factors should Apollonia consider in making this decision? 3. Suppose that the lab facility is owned rather than rented and that the $22,000 is depreciation rather than rent. What effect does this have on the analysis in Requirement 1? 4. Refer to the original data. Assume that the volume of crowns is 5,000 all porcelain and 2,000 porcelain fused to metal. Should Apollonia make or buy the crowns? Explain the outcome. Problem 17.29 Sell or Process Further Objective 4 - Apply the tactical decision-making concepts in a variety of business situations. Pharmaco Corporation buys three chemicals that are processed to produce two popular ingredients for liquid pain ox relievers. The three chemicals are in liquid form. The = purchased chemicals are blended for two to three hours and then heated for 15 minutes, The results of the process are two separate ingredients, PR1 and PR2. For every 4,300 gallons of chemicals used, 2,000 gallons of each pai ‘companies that process them into their final form. The selling prices are $34 per gallon for PR1 and $45 per gallon for PR2. The costs to produce one batch (containing 2,000 gallons of each chemical) are as follows reliever are produced. The pain relievers are sold to Chemicals $23,40€ Direct labor 9,00€ Catalyst 3,60€ Overhead 8,00€ The pain relievers are bottled in five-gallon plastic containers and shipped The cost of each container is $2.10. The costs of shipping are $0.50 per container. Pharmaco Corporation could process PR1 further by mixing it with inert powders and flavoring to form tablets. The tablets can be sold directly to retail hitpsng.congage.comistaicinblilevoindex hum! eISBN-87813059707248id=1874S62496nbld=5246498.snapsholld=5246498dockAppUIG=1018 one