Posted: April 30th, 2016

Compute the dollar amount of ending?

Direct materials $ 15
Direct labor 40
Variable manufacturing overhead 10
Fixed manufacturing overhead 35
Total $100

James Industries uses 4,000 components per year. After Light, Inc., submitted a bid of $80 per component, some members of management felt they could reduce costs by buying from outside and discontinuing production of the component. If the component is obtained from Light, Inc., James’s unused production facilities could be leased to another company for $50,000 per year.

Required:

a. Determine the maximum amount per unit James should pay an outside supplier.
b. Indicate if the company should make or buy the component and the total dollar difference in favor of that alternative.
c. Assume the company could eliminate production supervisors with salaries totaling $30,000 if the component is purchased from an outside supplier. Indicate if the company should make or buy the component and the total dollar difference in favor of that alternative.

3. Baker Company produced 30,000 units and sold 28,000 units in 2011. Beginning inventory was zero. During the period, the following costs were incurred:

Indirect labor $ 60,000
Indirect materials 30,000
Other (variable overhead) 90,000
Fixed manufacturing overhead 180,000
Fixed administrative expenses 150,000
Fixed selling expenses 120,000
Variable selling expenses, per unit 40
Direct labor, per unit 80
Direct materials, per unit 20

Required:

Compute the dollar amount of ending inventory using:

a. Absorption costing
b. Variable costing

4. Bert Corporation is considering an investment in equipment for $150,000.
Data related to the investment are as follows:

Income before
Year Depreciation and Taxes
1 $60,000
2 60,000
3 60,000
4 60,000
5 60,000

Cost of capital is 10 percent.

Bert uses the straight-line method of depreciation with mid-year convention for tax purposes. In addition, its tax rate is 40 percent and the depreciable life of the equipment is four years with no salvage value. The equipment is sold at the end of the fifth year.