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The management of Ramir Manufacturing Company is trying to decide whether to continue manufacturing a part or to buy it from an outside supplier. The part, called BROCO, is a component of the company's finished product. The following information was collected from the accounting records and production data for the year ending December 31, 2022. 1. 8,000 units of BROCO were produced in the Production Department. 2. Variable manufacturing costs applicable to the production of each BROCO unit were: direct materials $4.80, direct labor $4.30, indirect labor $0.43, utilities $0.40. Fixed manufacturing costs applicable to the production of BROCO were: 3. Cost Item Depreciation Property taxes Insurance Direct $2,100 500 900 $3.500 Allocated $ 900 200 600 $1,700 Total $3,000 700 1,500 $5.200 All variable manufacturing and direct fixed costs will be eliminated if BROCO is purchased. Allocated costs will not be eliminated if BROCO is purchased. So if BROCO is purchased, the fixed manufacturing costs allocated to BROCO will have to be absorbed by other production departments. 4. The lowest quotation for 8,000 BROCO units from a supplier is $80,000. 5. If BROCO units are purchased, freight and inspection costs would be $0.35 per unit, and receiving costs totaling $1,300 per year would be incurred by the Producing Department.

The management of Ramir Manufacturing Company is trying to decide whether to continue manufacturing a part or to buy it from an outside supplier. The part, called BROCO, is a component of the company's finished product. The following information was collected from the accounting records and production data for the year ending December 31, 2022. 1. 8,000 units of BROCO were produced in the Production Department. 2. Variable manufacturing costs applicable to the production of each BROCO unit were: direct materials $4.80, direct labor $4.30, indirect labor $0.43, utilities $0.40. Fixed manufacturing costs applicable to the production of BROCO were: 3. Cost Item Depreciation Property taxes Insurance Direct $2,100 500 900 $3.500 Allocated $ 900 200 600 $1,700 Total $3,000 700 1,500 $5.200 All variable manufacturing and direct fixed costs will be eliminated if BROCO is purchased. Allocated costs will not be eliminated if BROCO is purchased. So if BROCO is purchased, the fixed manufacturing costs allocated to BROCO will have to be absorbed by other production departments. 4. The lowest quotation for 8,000 BROCO units from a supplier is $80,000. 5. If BROCO units are purchased, freight and inspection costs would be $0.35 per unit, and receiving costs totaling $1,300 per year would be incurred by the Producing Department.

Cornerstones of Cost Management (Cornerstones Series)
Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter2: Basic Cost Management Concepts
Section: Chapter Questions
Problem 13E: Wyandotte Company provided the following information for the last calendar year: During the year,...
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The management of Ramir Manufacturing Company is trying to decide whether to continue manufacturing a part or to buy it from an outside supplier. The part, called BROCO, is a component of the company's finished product. The following information was collected from the accounting records and production data for the year ending December 31, 2022. 1. 8,000 units of BROCO were produced in the Production Department. 2. Variable manufacturing costs applicable to the production of each BROCO unit were: direct materials $4.80, direct labor $4.30, indirect labor $0.43, utilities $0.40. Fixed manufacturing costs applicable to the production of BROCO were: 3. Cost Item Depreciation Property taxes Insurance Direct $2,100 Instructions 500 900 $3.500 Allocated $ 900 200 600 $1,700 Total $3,000 700 1,500 $5.200 All variable manufacturing and direct fixed costs will be eliminated if BROCO is purchased. Allocated costs will not be eliminated if BROCO is purchased. So if BROCO is purchased, the fixed manufacturing costs allocated to BROCO will have to be absorbed by other production departments. 4. The lowest quotation for 8,000 BROCO units from a supplier is $80,000. 5. If BROCO units are purchased, freight and inspection costs would be $0.35 per unit, and receiving costs totaling $1,300 per year would be incurred by the Producing Department.
Transcribed Image Text:The management of Ramir Manufacturing Company is trying to decide whether to continue manufacturing a part or to buy it from an outside supplier. The part, called BROCO, is a component of the company's finished product. The following information was collected from the accounting records and production data for the year ending December 31, 2022. 1. 8,000 units of BROCO were produced in the Production Department. 2. Variable manufacturing costs applicable to the production of each BROCO unit were: direct materials $4.80, direct labor $4.30, indirect labor $0.43, utilities $0.40. Fixed manufacturing costs applicable to the production of BROCO were: 3. Cost Item Depreciation Property taxes Insurance Direct $2,100 Instructions 500 900 $3.500 Allocated $ 900 200 600 $1,700 Total $3,000 700 1,500 $5.200 All variable manufacturing and direct fixed costs will be eliminated if BROCO is purchased. Allocated costs will not be eliminated if BROCO is purchased. So if BROCO is purchased, the fixed manufacturing costs allocated to BROCO will have to be absorbed by other production departments. 4. The lowest quotation for 8,000 BROCO units from a supplier is $80,000. 5. If BROCO units are purchased, freight and inspection costs would be $0.35 per unit, and receiving costs totaling $1,300 per year would be incurred by the Producing Department.
C. Would the decision be different if Ramir Company has the opportunity to produce $3,000 of net income with the facilities currently being used to manufacture BROCO? Show computations. d. Nl increase $1,840 e. What nonfinancial factors should management consider in making its decision?
Transcribed Image Text:C. Would the decision be different if Ramir Company has the opportunity to produce $3,000 of net income with the facilities currently being used to manufacture BROCO? Show computations. d. Nl increase $1,840 e. What nonfinancial factors should management consider in making its decision?
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