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Zee-Drive Ltd. is a computer manufacturer. One of the items they make is monitors. Zee-Drive has the opportunity to purchase 19,000 monitors from an outside supplier for $211 per unit. One of the company's cost-accounting interns prepared the following schedule of Zee-Drive's cost to produce 19,000 monitors: Total cost of producing 19,000 monitors Unit cost Direct materials $ 2,204,000 $116 Direct labor 1,330,000 70 Variable factory overhead 665,000 35 Fixed manufacturing overhead 570,000 30 Fixed non-manufacturing overhead 722,000 38 $ 5,491,000 $ 289 You are asked to look over the intern's estimate before the information is shared with members of management who will decide to continue to make the monitors or buy them. The company's controller believes that the estimate may be incorrect because it includes costs that are not relevant. If Zee-Drive buys the monitors, the direct labor force currently employed in producing the monitors will be terminated and there would be no termination costs incurred. There are no materials on hand and no commitments to suppliers to purchase materials, so all materials would need to be purchased to make the monitors. Variable overheads are avoidable if monitors are bought. Fixed manufacturing overhead costs would be reduced by $55,400, but non-manufacturing costs would remain the same if monitors are bought. Fill in the differential analysis. Make or Buy Decisions Differential Analysis Report Purchase price of 19,000 monitors 4,009,000 Differential cost to make: Direct materials Direct labor 1,330,000 Overhead Differential income (loss) from making monitors

Zee-Drive Ltd. is a computer manufacturer. One of the items they make is monitors. Zee-Drive has the opportunity to purchase 19,000 monitors from an outside supplier for $211 per unit. One of the company's cost-accounting interns prepared the following schedule of Zee-Drive's cost to produce 19,000 monitors: Total cost of producing 19,000 monitors Unit cost Direct materials $ 2,204,000 $116 Direct labor 1,330,000 70 Variable factory overhead 665,000 35 Fixed manufacturing overhead 570,000 30 Fixed non-manufacturing overhead 722,000 38 $ 5,491,000 $ 289 You are asked to look over the intern's estimate before the information is shared with members of management who will decide to continue to make the monitors or buy them. The company's controller believes that the estimate may be incorrect because it includes costs that are not relevant. If Zee-Drive buys the monitors, the direct labor force currently employed in producing the monitors will be terminated and there would be no termination costs incurred. There are no materials on hand and no commitments to suppliers to purchase materials, so all materials would need to be purchased to make the monitors. Variable overheads are avoidable if monitors are bought. Fixed manufacturing overhead costs would be reduced by $55,400, but non-manufacturing costs would remain the same if monitors are bought. Fill in the differential analysis. Make or Buy Decisions Differential Analysis Report Purchase price of 19,000 monitors 4,009,000 Differential cost to make: Direct materials Direct labor 1,330,000 Overhead Differential income (loss) from making monitors

Principles of Accounting Volume 2
Principles of Accounting Volume 2
19th Edition
ISBN:9781947172609
Author:OpenStax
Publisher:OpenStax
Chapter6: Activity-based, Variable, And Absorption Costing
Section: Chapter Questions
Problem 2PB: Five Card Draw manufactures and sells 10,000 units of Aces, which retails for $200, and 8,000 units...
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Zee-Drive Ltd. is a computer manufacturer. One of the items they make is monitors. Zee-Drive has the opportunity to purchase 19,000 monitors from an outside supplier for $211 per unit. One of the company's cost-accounting interns prepared the following schedule of Zee-Drive's cost to produce 19,000 monitors: Total cost of producing 19,000 monitors Unit cost Direct materials $ 2,204,000 $116 Direct labor 1,330,000 70 Variable factory overhead 665,000 35 Fixed manufacturing overhead 570,000 30 Fixed non-manufacturing overhead 722,000 38 $ 5,491,000 $ 289 You are asked to look over the intern's estimate before the information is shared with members of management who will decide to continue to make the monitors or buy them. The company's controller believes that the estimate may be incorrect because it includes costs that are not relevant. If Zee-Drive buys the monitors, the direct labor force currently employed in producing the monitors will be terminated and there would be no termination costs incurred. There are no materials on hand and no commitments to suppliers to purchase materials, so all materials would need to be purchased to make the monitors. Variable overheads are avoidable if monitors are bought. Fixed manufacturing overhead costs would be reduced by $55,400, but non-manufacturing costs would remain the same if monitors are bought. Fill in the differential analysis. Make or Buy Decisions Differential Analysis Report Purchase price of 19.000 monitors 4,009,000 Differential cost to make: Direct materials Direct labor 1,330,000 Overhead Differential income (loss) from making monitors
Transcribed Image Text:Zee-Drive Ltd. is a computer manufacturer. One of the items they make is monitors. Zee-Drive has the opportunity to purchase 19,000 monitors from an outside supplier for $211 per unit. One of the company's cost-accounting interns prepared the following schedule of Zee-Drive's cost to produce 19,000 monitors: Total cost of producing 19,000 monitors Unit cost Direct materials $ 2,204,000 $116 Direct labor 1,330,000 70 Variable factory overhead 665,000 35 Fixed manufacturing overhead 570,000 30 Fixed non-manufacturing overhead 722,000 38 $ 5,491,000 $ 289 You are asked to look over the intern's estimate before the information is shared with members of management who will decide to continue to make the monitors or buy them. The company's controller believes that the estimate may be incorrect because it includes costs that are not relevant. If Zee-Drive buys the monitors, the direct labor force currently employed in producing the monitors will be terminated and there would be no termination costs incurred. There are no materials on hand and no commitments to suppliers to purchase materials, so all materials would need to be purchased to make the monitors. Variable overheads are avoidable if monitors are bought. Fixed manufacturing overhead costs would be reduced by $55,400, but non-manufacturing costs would remain the same if monitors are bought. Fill in the differential analysis. Make or Buy Decisions Differential Analysis Report Purchase price of 19.000 monitors 4,009,000 Differential cost to make: Direct materials Direct labor 1,330,000 Overhead Differential income (loss) from making monitors
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