Question

Can you please complete this problem? (6-13B) The excel is how it needs to be layed out. Thanks!

Exercise 6-13B Outsourcing decision affected by opportunity costs Baxter Doors Company currently produces the doorknobs for the doors it makes and sells. The monthly cost of producing 5,000 doorknobs is as follows. Unit-level materials $ 16,000 Unit-level labor 30,000 Unit-level overhead 4,000 Product-level costs 32,000 Allocated facility-level costs 20,000 "Twenty percent of these costs can be avoided if the doorknobs are purchased Wells Company has offered to sell comparable doorknobs to Baxter for $15.20 each. Required a. Should Baxter continue to make the doorknobs? Support your answer with appropriate computations b. For $24,000 per month, Baxter could lease the manufacturing space to another company. Would this potential cash inflow affect your response to Requirement a? Explain.

Answer 1

Answer is given below

Allocated facility level cost is irrelevant for make vs buy decision

Parta Make Buy $76,000 (5,000*$15.20) Purchase price Direct Material Direct Labor Overheads Product level costs Totals $16,000 $30,000 $4,000 $32,000 $82,000 $25,600 (80% unavoidable cost only) $101,600 Differential $19,600 Conclusion: Since cost to make is lower Baxter should manufacture the doorknobs Part b Totals from above Lease Totals Make $82,000 $24,000 $106,000 Buy $101,600 __(Opportunity cost) $101,600 Differential -$4,400 Conclusion: Baxter should purchase the doorknobs since it is savings