80.2K

Verified Solution

Link Copied!

Question: What is the maximum amount MI should pay for the shake maker from an independent supplier (price per unit) to be no worse off financially? Show your work.

I'VE GOTTEN 3 DIFFERENT ANSWERS FROM DIFFERENT PEOPLE ALREADY, CAN SOMEONE PLEASE HELP?

McVay Industries (MI) produces ice cream supplies including bowls, scoops and shake makers. MI made $605,000 of pre-tax profit last year. They are looking for ways to improve profitability and are considering outsourcing production of their shake makers. Juan Hernandez, the controller, compiled the following information. Bowls 2,000,000 Shake Makers 100,000 Scoops 500,000 Units Manufactured and sold TOTAL S0.50 S0.10 S0.15 S0.40 S1.25 S0.50 S0.25 $0.50 $5.00 S4.00 $5.00 $5.00 DM per unit DL per unit VMOH per unit FMOH per unit (based on current production) Total Cost per unit Selling Price Gross Profit per Unit $1.15 $2.00 S0.85 $2.50 S4.00 $1.50 S19.00 S25.00 S6.00 Total Sales $4,000,000 $2,000,000 $2,500,000 Total COGS $2,300,000 $1,250,000 $1,900,000 Total Gross Profit $1,700,000 $750,000 $600,000 Total Variable (selling) costs ($300,000) ($100,000) ($125,000) SG&A Fixed Costs - Direct ($400,000) ($200,000) ($100,000) SG&A Fixed Costs - Common** ($680.000) ($300,000) ($240,000) Pre-Tax Profit $320,000 $150.000 $135.000 Direct SG&A Fixed Costs can be eliminated if the specific product is outsourced. ** Common SG&A Fixed Costs can not be eliminated even if the specific product is outsourced. $8,500,000 $5,450,000 $3,050,000 ($525,000) ($700,000) ($1,220,000) $605.000 If the shake maker is outsourced, fixed manufacturing overhead costs of $100,000 to lease machinery related to shake maker production could be eliminated. Assume that direct fixed SG&A expenses relate directly to the shake makers line and could be completely eliminated if the shake maker product line is dropped. Additionally, if the shake maker is outsourced, the company would have idle capacity and could produce and sell an additional 150,000 bowls (for the same selling price of $2 per bowl). Question: What is the maximum amount MI should pay for the shake maker from an independent supplier (price per unit) to be no worse off financially? Show your work

Answer & Explanation Solved by verified expert

See Answer