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Sandhill Pets has recently started to manufacture talking toy pets. The cost structure to manufacture 15,000 of these toy pets is as follows:

Direct materials ($31 per pet)		$465,000
Direct labour ($25 per pet)		375,000
Variable overhead ($10 per pet)		150,000
Allocated fixed overhead ($20 per pet)		300,000
Total		$1,290,000

Sandhill Pets is approached by Tamarisk Inc., which offers to make the toy pets for $78 per unit. Using incremental analysis, determine whether Sandhill Pets should accept this offer under each of the following independent assumptions:

Prepare an incremental analysis. Assume that $150,000 of the fixed overhead cost (in making 15,000 of the toy pets) is avoidable. (Enter savings with a negative sign preceding the number e.g. -15,000 or parenthesis, e.g. (15,000). While alternate approaches are possible, irrelevant fixed costs should be included in both options when solving this problem.)

Cost		Make		Buy		Cost (Saving)
select an item Variable overheadDirect materialsDirect labourSalesPurchase priceFixed overheadNet income / (loss)		$enter a dollar amount		$enter a dollar amount		$enter a dollar amount
select an item Fixed overheadNet income / (loss)Variable overheadSalesDirect labourDirect materialsPurchase price		enter a dollar amount		enter a dollar amount		enter a dollar amount
select an item Fixed overheadPurchase priceVariable overheadSalesDirect labourNet income / (loss)Direct materials		enter a dollar amount		enter a dollar amount		enter a dollar amount
select an item Net income / (loss)Variable overheadDirect labourDirect materialsSalesFixed overheadPurchase price		enter a dollar amount		enter a dollar amount		enter a dollar amount
select an item SalesDirect labourVariable overheadNet income / (loss)Fixed overheadPurchase priceDirect materials		enter a dollar amount		enter a dollar amount		enter a dollar amount
Total annual cost		$enter a total amount		$enter a total amount		$enter a total amount

Should Sandhill Pets continue to make the pets or buy the pets?

Sandhill Pets should select an option buycontinue to make the pets.

Question Part Score

--/7

Prepare an incremental analysis. Assume that none of the fixed overhead is avoidable. However, if the pets are purchased from Tamarisk, Sandhill Pets can use the released productive resources to generate additional income of $214,600. (Enter savings with a negative sign preceding the number e.g. -15,000 or parenthesis, e.g. (15,000). While alternate approaches are possible, irrelevant fixed costs should be included in both options when solving this problem.)

Cost		Make		Buy		Cost (Saving)
select an item Purchase priceVariable overheadSalesFixed overheadDirect materialsNet incomeDirect labour		$enter a dollar amount		$enter a dollar amount		$enter a dollar amount
select an item SalesDirect materialsNet incomeFixed overheadDirect labourPurchase priceVariable overhead		enter a dollar amount		enter a dollar amount		enter a dollar amount
select an item Direct labourPurchase priceFixed overheadDirect materialsSalesNet incomeVariable overhead		enter a dollar amount		enter a dollar amount		enter a dollar amount
select an item Net incomeFixed overheadSalesPurchase priceVariable overheadDirect materialsDirect labour		enter a dollar amount		enter a dollar amount		enter a dollar amount
select an item Variable overheadFixed overheadNet incomeDirect materialsSalesPurchase priceDirect labour		enter a dollar amount		enter a dollar amount		enter a dollar amount
Total annual cost		enter a total amount for the first part		enter a total amount for the first part		enter a total amount for the first part
select between addition and deduction AddLess: Opportunity cost		enter a dollar amount		enter a dollar amount		enter a dollar amount
Total cost		$enter a total amount		$enter a total amount		$enter a total amount

Should Sandhill Pets continue to make the pets or buy the pets?

Sandhill Pets should select an option continue to makebuy the pets.

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