Question : 35) Sarasota Bicycles has been manufacturing its own wheels for : 1837764

35) Sarasota Bicycles has been manufacturing its own wheels for its bikes. The company is currently operating at 100% capacity, and variable manufacturing overhead is charged to production at the rate of 30% of direct labour cost. The direct materials and direct labour cost per unit to make the wheels are $3.00 and $3.60 respectively. Normal production is 200,000 wheels per year.

A supplier offers to make the wheels at a price of $8 each. If the bicycle company accepts this offer, all variable manufacturing costs will be eliminated, but the $84,000 of fixed manufacturing overhead currently being charged to the wheels will have to be absorbed by other products.

Required:

a.Prepare an incremental analysis for the decision to make or buy the wheels.

b.Should Sarasota Bicycles buy the wheels from the outside supplier? Justify your answer.

36) Southwestern Company needs 1,000 motors in its manufacture of automobiles. It can buy the motors from Jinx Motors for $1,250 each. Southwestern's plant can manufacture the motors for the following costs per unit:

Direct materials$500

Direct manufacturing labour250

Variable manufacturing overhead200

Fixed manufacturing overhead350

Total$1,300

If Southwestern buys the motors from Jinx, 30% of the fixed manufacturing overhead applied will be avoided.

Required:

a.Should the company make or buy the motors?

b.What additional qualitative factors should Southwestern consider in deciding whether or not to make or buy the motors?

37) Quiett Truck manufactures part WB23 used in several of its truck models. 10,000 units are produced each year with production costs as follows:

Direct materials$45,000

Direct manufacturing labour15,000

Variable support costs35,000

Fixed support costs25,000

Total costs$120,000

Quiett Truck has the option of purchasing part WB23 from an outside supplier at $11.20 per unit. If WB23 is outsourced, 40% of the fixed costs cannot be immediately converted to other uses.

Required:

a.Describe avoidable costs. What amount of the WB23 production costs is avoidable?

b.Should Quiett Truck outsource WB23? Why or why not?

c.What qualitative factors should Quiett Truck consider before outsourcing any of the parts it currently manufactures?