Material and labor cost estimation

Reference no: EM13259747

Avery is under intense cost competition. As the managementaccountant for Avery, you have been asked to evaluate whether they should continue to manufactureone of its many products or purchase it from Marley Company. Marley has submitted a bid to supply the 32,000 units that are expected to be required in 2009 at a price of$17.30 each. Current capacity is available to support annual production of 32,000units.

From plant records and interviews with the plant manager, you havegathered the following information regarding Avery's costs to manufacture 30,000 units of the product in 2008:

Direct Materials $ 195,000
Direct Manufacturing Labour 120,000
Plant Space Rental 84,000
Equipment Leasing 36,000
Other Manufacturing Overhead 225,000
Total Manufacturing Costs $ 660.000

Additionally, you are aware that:

Variable costs per unit in 2009 will be the same as variable costsper unit in 2008.

• Plant rental and equipment lease are annual contracts thatare going to be expensive to terminate and it is expected that it will cost $10,000 for theplant rental contract and $5,000 to terminate the equipment-lease contract.

• 40% of the other manufacturing overhead is variable,proportionate to the direct manufacturing costs. The fixed component of other manufacturingoverhead is expected to remain the same whether the product is manufactured by Avery oroutsourced to
Marley

• Avery's just-in-time policy means that inventory isnegligible.

Required:

1. On the basis of the material and labor cost estimates originally compiled with the Plant Manager's help, should you recommend that the product be producedat Avery or purchased from Marley? Show your calculations.

2. What other factors should you examine before recommending whether Avery should manufacture or outsource the product?

Reference no: EM13259747

Questions Cloud

Explain the effects you believe the internet’s capabilities : Explain the effects you believe the Internet’s capabilities will have on the brands you identified in the previous discussion and what the owner of the brand should do in light of them.

Catalysts are substances that increase the rate of reaction : Catalysts are substances that increase the rate of reaction but can be recovered unchanged at the end of the reaction. Catalysts can be classified as either homogeneous or heterogeneous

Explain the reactant concentration in a first order reaction : The reactant concentration in a first order reaction was 5.50x10^-2 M after 40.0s and 1.60x10^-3 M after 100s. What is the rate constant for this reaction

Sufficient idle capacity to accept the order : ABC Company has just received a special order for 1,000 deck chairs. ABC has sufficient idle capacity to accept the order. Indicate whether the given cost is a sunk cost, opportunity cost, relevant or not relevant to the decision to accept the spe..

Material and labor cost estimation : On the basis of the material and labor cost estimates originally compiled with the Plant Manager's help, should you recommend that the product be producedat Avery or purchased from Marley? Show your calculations.

What are the major business units of altria group : What are the major business units of Altria Group? Why do you think the Altria Group Annual Report has so much discussion of contingencies

Discuss on the industry analysis : In this Case Study, you will research an airline company and give a brief overview of the company, identify the industry it is a part of, and complete a Five Forces Industry Analysis.

Ecuador is in south america : Which of the following statements about Ecuador is NOT true. Ecuador is in South America. The Andes Mountains are near Quito.

State calcium phosphide reacts with water to the equation : Calcium phosphide reacts with water according to the equation. Using 84.0g of Ca ?P? and 36.0g of H?O, What volume of PH? will be produced at 273 K and a pressure of 1520 torr

User Account

All Pages