Question

Harcourt Company makes decorative wedding cakes. The company is considering buying the cakes rather than baking them, which will allow it to concentrate on decorating. The company averages 100 wedding cakes per year and incurs the following costs from baking wedding cakes: Fixed costs are primarily the depreciation on kitchen equipment such as ovens and mixers. Harcourt expects to retain the equipment. Harcourt can buy the cakes for $29. Should Harcourt make the cakes or buy them? Why? If Harcourt decides to buy the cakes, what are some qualitative factors that Harcourt should also consider? 11 E (Click the icon to view the costs.) 12 11. Should Harcourt make the cakes or buy them? Why? (For the Difference column, use cakes in-house.) minus sign or parentheses only when the cost of outsourcing exceeds the cost of making the Make Outsource Difference Cake costs cakes (make-outsource) cakes Variable costs: Direct materials Direct labor Variable manufacturing overhead Purchase cost Total differential cost of cakes Harcourt continue to make the cakes. Outsourcing will 12. If Harcourt decides to buy the cakes, what are some qualitative factors that Harcourt should also consider? OA Qualitative factors include quality and on-time delivery OB. Qualitative factors inckude separating fixed and variable costs. OC. Qualitative factors include considering sunk costs and manager's opinions OD. Qualitative factors include contribution margins of the various products produced If Harcourt decides to buy the cakes, what should also consider? 12 the cost of outsou them? Why? (For Data Table Make cakes Direct materials 525 Direct labor 950 Variable manufacturing overhead 350 1,300 Fixed manufacturing overhead Total manufacturing cost 3,125 100 Number of cakes 31 Cost per cake ake the cakes. Outsourcin kes, what are some qualt Print Done uality and on-time delivery eparating fxed and variable costs considering sunk costs and manager's opinions. contribution margins of the various products produced A Direct labor Variable manufacturing overhead Purchase cost Total differential cost of cakes Harcourt continue to make the cakes. Outsourcing will 12. If Har the cakes, what are some qualitative factors that Harcourt should also consider? should O A. Q O B. Q O C. Qualitative factors include considering sunk costs and manager's opinions. O D. Qualitative factors include contribution margins of the various products produced ude quality and on-time delivery. should not ude separating fixed and variable costs. Total differential cost of cakes continue to make the cakes. Outsourcing will Harcourt 12. If Harcourt decides to buy the cakes, what are some qualitative fa ider? decrease profits by $1,075. OA. Qualitative factors include quality and on-time delivery. increase profits by $1,075 O B. Qualitative factors include separating fixed and variable costs O C. Qualitative factors include considering sunk costs and manager's opinions O D. Qualitative factors include contribution margins of the various products produced. 12. If Harcourt decides to buy the cakes, what are some qualitative factors that Harcourt should also consider? OA. Qualitative factors include quality and on-time delivery. O B. Qualitative factors include separating fixed and variable costs. O C. Qualitative factors include considering sunk costs and manager's opinions. OD. Qualitative factors include contribution margins of the various products produced.

Answer 1

A C D Differnce Qutsource make cakes Cake costs 1 (make- outsource) cakes 2 Variable costs: 3 Direct materials 5.25 5.25 4 Direct Labor 9.5 9.5 5 Variable manufacturing overhead 3.5 3,5 6 Purchase Price 29 -29 7 Total Differential cost of cakes 18.25 29 -10.75 8 9 The cost of outsourcing is Greater than cost of manufacturing 10 Decrease in total profits - 100 cakes 10.75 1,075.00 11 12 13 Solution: harcourt Should continue to make cakes. Outsourcing will decrease profits by $1075 CO

Formula:

A B C Differnce Cake costs 1 make cakes Outsource cakes (make - outsource) 2 Variable costs: -525/100 =950/100 5 Variable manufacturing overhead 350/100 =B3-C3 Direct materials 3 4 Direct Labor -B4-C4 -B5-C5 =B6-C6 6 Purchase Price 29 -SUM(B3:B6) -SUM(C3:C6) -B7-C7 7 Total Differential cost of cakes 8 9 The cost of outsourcing is Greater than cost of manufacturing 10 Decrease in total profits - 100 cakes 10.75 - 100* 10.75 11 12 13 Solution: harcourt Should continue to make cakes. Outsourcing will decrease profits by $1075