Question

Make versus buy, activity-based costing. The Svenson Corporation manufactures cellular modems.
I t manufactures its own cellular modem circuit boards (CMCB), an important part of the cellular modem. I t
reports the following cost information about the costs of making CMCBs in 201 4 and the expected costs in 201 5:
Current Costs
in 201 4
Expected
Costs in 201 5
Variable manufacturing costs
Direct material cost per CMCB $ 1 80 $ 1 70
Direct manufacturing labor cost per CMCB 50 45
Variable manufacturing cost per batch for setups, materials
handling, and quality control 1 ,600 1 ,500
Fixed manufacturing cost
Fixed manufacturing overhead costs that can be avoided if CMCBs
are not made 320,000 320,000
Fixed manufacturing overhead costs of plant depreciation,
insurance, and administration that cannot be avoided even if
CMCBs are not made 800,000 800,000
Svenson manufactured 8,000 CMCBs in 201 4 in 40 batches of 200 each. In 201 5, Svenson anticipates needing
1 0,000 CMCBs. The CMCBs would be produced in 80 batches of 1 25 each.
The Minton Corporation has approached Svenson about supplying CMCBs to Svenson in 201 5 at $300
per CMCB on whatever delivery schedule Svenson wants.
1 . Calculate the total expected manufacturing cost per unit of making CMCBs in 201 5.
2. Suppose the capacity currently used to make CMCBs will become idle if Svenson purchases CMCBs
from Minton. On the basis of financial considerations alone, should Svenson make CMCBs or buy them
from Minton? Show your calculations.
3. Now suppose that if Svenson purchases CMCBs from Minton, its best alternative use of the capacity
currently used for CMCBs is to make and sell special circuit boards (CB3s) to the Essex Corporation.
Svenson estimates the following incremental revenues and costs from CB3s:
Total expected incremental future revenues $2,000,000
Total expected incremental future costs $2,1 50,000
On the basis of financial considerations alone, should Svenson make CMCBs or buy them from Minton? Show your calculations.

Answer 1

Answer:

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Explanation:

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