AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 12-03 Prepare a make or buy analysis.
109 At what purchase price for the wheels would Talbot be indifferent
. between making or buying the wheels?
A. $1.70 per
wheel
B. $1.60 per
wheel
C. $1.55 per
wheel
D. $1.15 per
wheel
The company would be indifferent at a price of $1.60 per wheel
($160,000 ÷ 100,000 wheels).
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 12-03 Prepare a make or buy analysis.
,Rama Corporation is presently making part J56 that is used in one of its products.
A total of 4,000 units of this part are produced and used every year. The
company's Accounting Department reports the following costs of producing the
part at this level of activity:
An outside supplier has offered to produce and sell the part to the company for
$30.80 each. If this offer is accepted, the supervisor's salary and all of the variable
costs, including direct labor, can be avoided. The special equipment used to make
the part was purchased many years ago and has no salvage value or other use.
The allocated general overhead represents fixed costs of the entire company, none
of which would be avoided if the part were purchased instead of produced
internally.
,110. If management decides to buy part J56 from the outside supplier rather than to
continue making the part, what would be the annual impact on the company's
overall net operating income?
A. Net operating income would increase by $44,000
per year.
B. Net operating income would increase by $10,000
per year.
C. Net operating income would decline by $10,000
per year.
D. Net operating income would decline by $44,000
per year.
Because of the higher cost to purchase, net operating income would decline by
$44,000 per year.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 1 Easy
Learning Objective: 12-03 Prepare a make or buy analysis.
, 111. In addition to the facts given above, assume that the space used to produce part
J56 could be used to make more of one of the company's other products,
generating an additional segment margin of $13,000 per year for that product.
What would be the impact on the company's overall net operating income of
buying part J56 from the outside supplier and using the freed space to make more
of the other product?
A. Net operating income would decline by $31,000
per year.
B. Net operating income would decline by $23,000
per year.
C. Net operating income would increase by $3,000
per year.
D. Net operating income would increase by $13,000
per year.
Because of the higher cost of purchasing, net operating income would decline by
$31,000 per year.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 12-03 Prepare a make or buy analysis.
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 12-03 Prepare a make or buy analysis.
109 At what purchase price for the wheels would Talbot be indifferent
. between making or buying the wheels?
A. $1.70 per
wheel
B. $1.60 per
wheel
C. $1.55 per
wheel
D. $1.15 per
wheel
The company would be indifferent at a price of $1.60 per wheel
($160,000 ÷ 100,000 wheels).
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 12-03 Prepare a make or buy analysis.
,Rama Corporation is presently making part J56 that is used in one of its products.
A total of 4,000 units of this part are produced and used every year. The
company's Accounting Department reports the following costs of producing the
part at this level of activity:
An outside supplier has offered to produce and sell the part to the company for
$30.80 each. If this offer is accepted, the supervisor's salary and all of the variable
costs, including direct labor, can be avoided. The special equipment used to make
the part was purchased many years ago and has no salvage value or other use.
The allocated general overhead represents fixed costs of the entire company, none
of which would be avoided if the part were purchased instead of produced
internally.
,110. If management decides to buy part J56 from the outside supplier rather than to
continue making the part, what would be the annual impact on the company's
overall net operating income?
A. Net operating income would increase by $44,000
per year.
B. Net operating income would increase by $10,000
per year.
C. Net operating income would decline by $10,000
per year.
D. Net operating income would decline by $44,000
per year.
Because of the higher cost to purchase, net operating income would decline by
$44,000 per year.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 1 Easy
Learning Objective: 12-03 Prepare a make or buy analysis.
, 111. In addition to the facts given above, assume that the space used to produce part
J56 could be used to make more of one of the company's other products,
generating an additional segment margin of $13,000 per year for that product.
What would be the impact on the company's overall net operating income of
buying part J56 from the outside supplier and using the freed space to make more
of the other product?
A. Net operating income would decline by $31,000
per year.
B. Net operating income would decline by $23,000
per year.
C. Net operating income would increase by $3,000
per year.
D. Net operating income would increase by $13,000
per year.
Because of the higher cost of purchasing, net operating income would decline by
$31,000 per year.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 12-03 Prepare a make or buy analysis.
