Question : 31) Lynn Valley Corporation currently manufactures a subassembly for its : 1185974

 

31) Lynn Valley Corporation currently manufactures a subassembly for its main product. The costs per unit are as follows:

 

Direct materials

$2.00

Direct labour

20.00

Variable overhead

10.00

Fixed overhead

16.00

 

Reliance Corp has contacted Lynn Valley with an offer to sell them 5,000 of the subassemblies for $44.00 each. Lynn Valley will eliminate $50,000 of fixed overhead if it accepts the proposal.

 

Should Omark make or buy the subassemblies? What is the difference between the two alternatives?

A) buy; savings = $20,000

B) buy; savings = $50,000

C) make; savings = $60,000

D) make; savings = $10,000

E) buy; savings = $10,000

Answer the following question(s) using the information below.

 

Day Star collected the following information:

 

Cost to buy one unit

$48

Production costs per unit:

 

Direct materials

$22

Direct labour

$16

Variable overhead

$2

Total fixed overhead

$360,000

 

Day Star can sell 25,000 units per year, at $80 each. The company also has an offer from a subsidiary to rent its plant facilities for $2,000,000. The fixed overhead will be incurred in each alternative, but there will be a savings of $150,000 in the fixed costs under the renting alternative.

 

32) Based on the above information only, should Day Star make or buy the product or rent its facilities out?

A) buy

B) make

C) either make or buy – indifferent

D) rent the facilities to the subsidiary

E) either make or rent – indifferent

 

33) What production level is required for Day Star to be indifferent between making or buying the part if $260,000 of fixed costs can be eliminated by buying?

A) 32,500 units

B) 26,500 units

C) 12,500 units

D) 1,000 units

E) 0 units

 

34) Audio Labs collected the following information on the cost of producing 20,000 speaker units:

 

Direct materials

$32.00 per unit

Direct labour

4.00 per unit

Variable overhead

16.00 per unit

Fixed overhead

20.00 per unit

 

Cartunes has offered to sell Audio 10,000 speakers for $56.00 each.

 

Should Audio Labs make or buy the parts if the facilities remain idle when speakers are purchased?

A) buy, save $16.00 per unit

B) buy, save $4.00 per unit

C) make, save $2.00 per unit

D) make, save $4.00 per unit

E) make, save $6.00 per unit

 

35) Clearwater Company operates a wine outlet in a tourist area. One litre bottles sell for $12. Daily fixed costs are $3,000, and variable costs are $6 per litre. An average of 750 litres are sold each day. Clearwater has a capacity of 800 litres per day.

 

Required:

a.Determine the average cost per bottle.

b.A bus loaded with 40 senior citizens stops by at closing time and the tour director offers Clearwater $300 for 40 litres. Clearwater refuses, saying they would lose $2.50 on each litre. Is Clearwater correct about the $2.50? Why or why not?

c.A fund-raising organization has offered Clearwater a one-year contract to buy 300 litres a day for $7.50 each. Should they accept the offer? Why or why not?

 

 

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