- If FlexManufacturing has no alternative use for the production capacity, what is the monthly financial advantage or disadvantage of accepting the supplier's offer?
Answer: $15,000 monthly advantage of buying
Relevant monthly cost to make = $50,000 + $35,000 + $25,000 + $25,000 = $135,000 (excluding the $15,000 unavoidable depreciation). Monthly cost to buy = $24 × 5,000 = $120,000. Monthly advantage of buying = $135,000 - $120,000 = $15,000. Option A is correct. Option B ($10,000) likely includes some unavoidable costs. Option C suggests buying is disadvantageous, possibly from including all fixed costs. Option D ($25,000) might result from incorrectly including unavoidable fixed costs in the analysis.
- What is the net annual benefit (cost) of outsourcing Widget X production?
Answer: $0 (break-even decision)
Current relevant cost to make = $120,000 + $80,000 + $40,000 = $240,000 annually (excluding allocated fixed overhead). Cost to buy = $26 × 10,000 = $260,000 annually. Additional cost of buying = $20,000. But opportunity benefit from Widget Y = $35,000 - $15,000 = $20,000 net. The $20,000 additional cost of buying is exactly offset by the $20,000 net opportunity benefit, resulting in break-even. Option A ignores the supervisor cost. Option C ignores both the cost increase from buying and supervisor cost. Option D only considers the direct cost increase from buying.
- What is the relevant cost comparison per unit between making and buying Part M?
Answer: Making costs $38 per unit; buying costs $47 per unit
Relevant cost to make = $18 + $14 + $6 = $38 per unit (excluding fixed overhead that continues regardless). Total cost to buy = $42 + $1.50 + $0.50 + $3.00 = $47 per unit. Option A is correct. Option B incorrectly includes fixed overhead in the make cost. Option C ignores the additional costs of buying. Option D includes both errors: fixed overhead in make cost and ignores additional buying costs.
