Relevant Costs and Decision Making

In this solution to part (c), it is assumed that the fixed overhead will be uncured regardless of what decision is made by the entity. Therefore, based on the above analysis Yogic will incur an additional cost of SSL 6 per unit if the subassembly are manufactured versus purchasing them from a vendor. 4. 18 A. The manager needs to decide if it is worth only making a revenue of $12 per 100 units by only producing the 100 or to make the 1000 units and have extra. With making just the 100, the extra expense for the special plastic covers make the commission go from $7 per 1 00 cones to $1 2 per 100 cones.

This helps cut the costs because the direct labor of the store attendant and rent are not included because they are making the cones during slack periods and do not require additional time for employees. Manufacturing costs (for 1 000 units) Manufacturing costs (for 1 00 units) Cost of ingredients – Direct material 530 53 Store attendant – Direct labor 300 Rent – F-axed Costs 600 Cost to manufacture 1430 Special Plastic cover (. 05 @ Each) 5 Revenue (1000 cones @ 1. 50 each) 1 500 150 Commission 70 12 B. The quantitative information that is relevant for this decision is the 100 ones and 100 required special plastic covers for each cone.

The fixed cost of store attendant labor and rent are not applied since the making of cones is done during the slack period. The company does not have to pay additional time requirement for making the extra 100. C. The minimum acceptable price per cone for this special order could stay at the $1. 50 each and still have the company making a good profit. D. The managers do not need to change the price and still keep the profit at a Max. They could change the price to allow for a discount rate to the tuned, but that would be there choice if they wanted to make less of a profit. . 20 A. Saguaro Systems needs to determine if they want to outsource the manufacturing to a Mexican company and take the risks involved with doing so. They are saving themselves $60,000 by outsourcing the work. The problem with having the Mexican company do the work is the inability to catch any mistakes in the manufacturing process. The managers can either decide to manufacture the units themselves and have the extra added cost or to outsource the work to a Mexican company and potentially have risks. C.