What is recommendation assuming variable manufacturing costs

Assignment Help Accounting Basics

Reference no: EM131913122

Problem

The McGee Company makes a complicated batting machine. Currently they produce their own ignition switches. Production manager Jimmy Edmonds has suggested they buy the switches rather than producing them in-house. CFO Jackie Buck is told by Jimmy that they can buy the switches for $8 per switch from the Cub Company. Further, Jimmy tells her that this is a great deal because it costs them $9 a switch to make them in-house and provides Ms. Buck with the information below.

Direct Materials $50,000
Direct Labor $75,000
Variable Manufacturing Costs $40,000
Fixed Manufacturing Costs (Allocated) $60,000
$225,000
Switches Manufactured Annually 25,000

Cost Per Switch ($225,000/25,000) $9.00 per switch

Ms. Buck comes to you, the financial analyst, and ask for your analysis of the information. What is your recommendation assuming all variable manufacturing costs will be eliminated and fixed manufacturing costs for the company are fixed? In your analysis, refer to one of the decision making models presented in the material and analyze the decision - step by step.

Write your answer in a Microsoft Word or Excel document and submit.

Reference no: EM131913122

Questions Cloud

How much money would have been in the account in 1992 : In 1492, Queen Isabella sponsored Christopher Columbus journey by giving him $10,000. If she had placed this money in a bank account.

What is meant by the terms net realizable value : What is meant by the terms net realizable value? How do accountants determine the net realizable value of receivables? Why is this amount important?

Cost of capital for an otherwise identical all-equity firm : What is the cost of capital for an otherwise identical all-equity firm?

What c should the company choose if it wishes to eliminate : What C should the company choose if it wishes to eliminate all wheat price risk?

What is recommendation assuming variable manufacturing costs : What is your recommendation assuming all variable manufacturing costs will be eliminated and fixed manufacturing costs for the company are fixed?

What can ratio analysis contribute to financial planning : What can ratio analysis contribute to financial planning and analysis? What are the determinants of the dynamic adjustment process

What is the sales variance shown in a flexible budget report : If actual sales revenue is $550,000 based on sales of 5,000 units, what is the sales variance shown in a flexible budget performance report?

What lot size should be produced : A producer of electronic parts wants to take account of both production rate and demand rate in deciding on its lot sizes. A particular $50 part.

Problem regarding the sampling distribution : A bank in a small town has 10,000 customers. A national survey on the banking habits of people in U.S. shows that 80% of the people with income.

User Account

All Pages