Answer:
Division A is doing better and his more profitable because it has a higher ROI than Division B
Explanation:
Return on Investment is the proportion of operating assets that an investment center earned as as net operating income.
ROI is measure of the returned earned by a division relative to the amount invested in the assets used to generate the return.
It is calculated as follows
ROI = operating income/operating assets
Division A
Net operating income = Sales - expenses
Net operating income = 200,000 - 150,000 = 50,000
Operating assets = 950,000
ROI = 50,000/950,000× 100 = 5.26 %
Division B
Net operating income = 45,000 - 35,000 = 10,000
Operating assets = 200,000
ROI = 10,000/ 200,000 × 100 = 5 %
Division A is doing better and his more profitable because it has a higher ROI than Division B
A monopolist's maximized rate of economic profits is $1500 per week. Its weekly output is 500 units, and at this output rate, the firm's marginal cost is $32 per unit. The price at which it sells each unit is $42 per unit. At these profit and output rates, what are the firm's average total cost and marginal revenue?
Answer:
Average total cost = $39
Marginal revenue = $32 per unit
Explanation:
The computation of average total cost and marginal revenue is shown below:-
Average total cost = Selling price - (Economic profit ÷ Weekly output)
= $42 - ($1,500 ÷ 500)
= $42 - 3
= $39
Marginal revenue = Marginal cost
So,
Marginal revenue = $32 per unit
Therefore for computing the average total cost and marginal revenue we simply applied the above formula.
Cobe Company has already manufactured 17,000 units of Product A at a cost of $20 per unit. The 17,000 units can be sold at this stage for $410,000. Alternatively, the units can be further processed at a $240,000 total additional cost and be converted into 5, 800 units of Product B and 11, 400 units of Product C. Per unit selling price for Product B is $107 and for Product C is $52.
Prepare an analysis that shows whether the 17,000 units of Product A should be processed further or not.
Sell as is ProcessFurther
Sales
Relevant costs:
Total relevant costs
Income (loss)
Incremental net income (or loss) if processed further
The company should
Answer:
differential analysis:
No further process Process further Differential
amount
Sales revenue $410,000 $1,213,400 $803,400
Production costs ($340,000) ($580,000) ($240,000)
Operating income $70,000 $633,400 $563,400
The company should process further and sell products B and C because its operating income will increase by $563,400.
A newly issued 20-year maturity, zero-coupon bond is issued with a yield to maturity of 8% and face value $1,000. Find the imputed interest income in: (a) the first year; (b) the second year; and (c) the last year of the bond’s life.
Answer:
First Year $ 17.17
Second Year $ 18.53
Last Year $ 74.08
Explanation:
Computation to Find the imputed interest income in: (a) the first year; (b) the second year; and (c) the last year of the bond’s life
Imputed Interest
First step
Using this formula
Imputed interest=(Present Value /1+Yield to maturity)^Numberd of years
Year Years Remaining to Maturity Constant Yield Value ( 1 / 1.08)^n
0 20 (1/1.08)^20= $ 214.54
1 19 (1/1.08)^19=$ 231.71
2 18 (1/1.08)^18=$ 250.24
19 1 (1/1.08)^1=$ 925.92
20 0 (1/1.08)^0=$ 1,000
Second step is to find the Imputed interest for the first year, second year; and the last year of the bond’s life
Year Years Remaining to Maturity Constant Yield Value ( 1 / 1.08)^n =Imputed Interest
0 20 $ 214.54
1 19 $ 231.71 $17.17
($231.71-$214.54)= $17.17
2 18 $ 250.24 $18.53
($250.24-$231.71)=$18.53
19 1 $ 925.92
20 0 $ 1,000 $74.08
($1,000-$925.92) =$74.08
Therefore the imputed interest will be:
First Year $ 17.17
Second Year $ 18.53
Last Year $ 74.08
In 2019, Tim sells Section 1245 property for $28,000 that he had purchased in 2009. Tim has claimed $5,000 in depreciation on the property and originally purchased it for $15,000. How much of the gain is taxable as ordinary income?
Answer:
The taxable amount at an ordinary rate = $5000
Explanation:
The selling price of a property in 2019 is = $28000
The depreciation on the property = $5000
Original purchased price of property = $15000
Adjusted tax = an orginal price – depreciation
Adjusted tax = 15000 – 5000 = $10000
Gain = selling price – adjusted tax
Gain = 28000 – 10000 = $18000
The part of gain ($18000) that is taxable as ordinary rate = $5000
Here, $13000 will be taxed as section 1231 as a gained tax at capital gain rate.
You bought one of Great White Shark Repellant Co.’s 6.6 percent coupon bonds one year ago for $1,056. These bonds make annual payments and mature 11 years from now. Suppose you decide to sell your bonds today, when the required return on the bonds is 4.5 percent. The bonds have a par value of $1,000. If the inflation rate was 3.2 percent over the past year, what was your total real return on investment? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Answer:
14.25%
Explanation:
For computing the total real return first we have to find out the present value and the required return which is shown below:
Given that,
Future value = $1,000
Rate of interest = 4.5%
NPER = 11 years
PMT = $1,000 × 6.6% = $66
The formula is shown below:
= -PV(Rate;NPER;PMT;FV;type)
So, after applying the above formula the present value is $1,179.11
Now the required return is
= ($1,179.11 + $66) ÷ ($1,056) -1
= 17.91%
And finally,
total real return
= ($1.1791 ÷ 1.032) - 1
= 14.25%
A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a long-term government and corporate bond fund, and the third is a T-bill money market fund that yields a sure rate of 5.5%. The probability distributions of the risky funds are: Expected Return Standard Deviation Stock fund (S) 15 % 32 % Bond fund (B) 9 % 23 % The correlation between the fund returns is 0.15. What is the Sharpe ratio of the best feasible CAL?
Answer:
0.296875
Explanation:
Given the following :
Probability distribution of risky funds :
- - - - - - - - - - - - - - stock fund(S) - - bond fund(B)
Expected return - - - 15% - - - - - - - - - - 9%
Std - - - - - - - - - - - - - 32% - - - - - - - - - - 23%
Correlation between funds return = 0.15
Sure rate = 5.5%
To calculate the Sharpe ratio we use the formula :
Sharpe Ratio = (Expected Return of Investment - Risk Free Rate) / Standard Deviation of excess return of investment
For the stock fund :
Expected return = 15%
Risk free rate = market sure rate = 5.5%
Standard deviation = 32%
Sharpe ratio of stock fund :
(15% - 5.5%) / 32%
= 9.5% / 32%
= 0.296875
For Bond fund :
Expected return = 9%
Risk free rate = market sure rate = 5.5%
Standard deviation = 23%
Sharpe ratio of bond fund :
(9% - 5.5%) / 23%
= 3.5% / 23%
= 0.1521739
Therefore the Sharpe ratio of the best feasible CAL is the higher of the two ratios which is 0.296875
intext:"A company has net sales of $1,200,000 and average accounts receivable of $400,000. What is its accounts receivable turnover for the period"
Answer:
i think it would be 4x
Explanation:
im dumb
McCall Corporation has a capital structure consisting of 55 percent common equity, 30 percent debt, and 15 percent preferred stock. Any debt issues would have a pre-tax cost of 9.5%. Preferred stock can be issued for a cost of 11.5%. Common equity can be issued, but flotation costs of $4.25 per share of common stock would be paid. McCall common stock is currently selling in the market at $65 per share. McCall recently paid a dividend of $4 per share and company earnings and dividends are expected to grow at an annual rate of 8% indefinitely. McCall has a marginal tax rate of 35% and the firm wants to keep its current capital structure. If the firm needs to raise additional equity, what will be the firm's cost of capital?
Answer:
WACC = 12.14%
Explanation:
Cost of debt = 9.5% x (1 - 35%) = 6.175%
Cost of preferred stock = 11.5%
Cost of equity (Re) = {D₁ / [P₀(1 - F)]} + g
Re = {($4.25 x 1.08) / [$65 x (1 - $4.25/$65)]} + 8% = ($4.59 / $60.75) + 8% = 15.56%
WACC = (15.55% x 0.55) + (6.175% x 0.30) + (11.5% x 0.15) = 8.56% + 1.85% + 1.73% = 12.14%
A process that automatically groups people with similar buying intentions, preferences, and behaviors and predicts future purchases is called _____.
Answer: collaborative filtering
Explanation:
A process that automatically groups people with similar buying intentions, preferences, and behaviors and predicts future purchases is referred to as collaborative filtering.
Collaborative filtering is a method of making predictions about a user by collecting information from other similar users.
A project requires an initial investment of $10 million today. If the cost of capital exceeds the project IRR, then the project must have a(n):
Answer:
Negative NPV.
Explanation:
present value of cost exceeds present value of revenue that is been assumed in the investment plan of the said company/firm.
Net Present Value describes one of the discounted techniques of cash flow used in capital budget to determining the viability of a project or an investment. It is seen to have a huge difference between the present flow of the firms; which is cash inflows and the present value of cash outflows over a period of time. Experts has tagged its primary advantage to be that it is seen to considers the concept of the time value of money.
As the assistant to the CFO of Johnstone Inc., you must estimate its cost of common equity. You have been provided with the following data: D 0 = $0.80; P 0 = $22.50; and g = 8.00% (constant). Based on the DCF approach, what is the cost of common from reinvested earnings?
Answer:
The cost of common equity from reinvested earnings is 11.84%
Explanation:
The constant growth model of DDM or DCF approach is used to calculate the price of a stock today whose dividends are expected to grow at a constant rate forever. The model values the stock based on the present value of the expected future dividends form the stock.
The formula for price today under this model is,
P0 = D0 * (1+g) / (r - g)
Where,
P0 is price todayD0 is the dividend todayr is the cost of equityg is the growth rate in dividendsPlugging in the available values for all the variables, we can calculate the r or cost of common equity to be,
22.5 = 0.8 * (1+0.08) / (r - 0.08)
22.5 * (r - 0.08) = 0.864
22.5r - 1.8 = 0.864
22.5r = 0.864 + 1.8
r = 2.664 / 22.5
r = 0.1184 or 11.84%
On January 1, Power House Co. prepaid the annual rent of $10,140. Prepare the journal entry to record this transaction.
Answer and Explanation:
The journal entry to record the given transaction is shown below:
Prepaid rent Dr $10,140
To Cash $10,140
(Being the prepaid annual rent paid in cash is recorded)
For recording this we debited the prepaid rent as it increased the assets and credited the cash as it reduced the cash so that the proper posting could be done
Abby had a checkbook balance of $1,002.45. She paid $76.98 to the electric company and $254.34 to the water company. What is Abby’s current checkbook balance?
Answer:
$671.13
Explanation:
Abby had a checkbook balance of $1,002.45
$76.98 was paid to the electric company
$254.34 was paid to the water company
Therefore the current checkbook balance can be calculated as follows
=$1,002.45-($76.98+$254.34)
= $1,002.45-$331.32
= $671.13
Hence Abby's current checkbook balance is $671.13
Compare and contrast the following forms of business organization: sole proprietorship,general partnership,limited liability company,and corporation as to ease of formation,liability of owners,management,and tax implications.
Answer:
Find the explanation below.
Explanation:
1. Sole Proprietorship is owned by a single person or a married couple.
a. Ease of formation: This business is very easy to form because owners are not required to have legal documentation for the business to begin operation.
b. Liability of Owners: Owners are personally liable for the success or failure of the business. This means that they bear the cost of whatever debt or losses that are incurred in the business and can be sued for it.
c. Management: The owner makes all the management decisions that could affect the business. He sets the time when his business can be run as well as the prices for his products.
d. Tax Implications: They fill out Schedule C where they calculate the profit and loss from their business. They declare their income in Standard Form 1040 and they are subject to Self-employment tax.
2. General Partnership is a business agreement between to or more owners.
a. Ease of Formation: It is quite easy to start this business because little or no legal documentation is required to kick-start the business.
b. Liability: All partners are liable for debts and losses incurred in the business.
c. Management Decisions: The management decisions are made by the general partners. This affords them a measure of flexibility.
d. Tax implications: Income tax is not paid rather, a separate tax return form is filed.
3. Limited Liability Company: These business entities are run by two or more business partners.
a. Ease of Formation: It is relatively easy to form because it is governed by state rules and regulations which must be adhered to by the business owners.
b. Liability: There is a limited liability as just the business assets can be withheld when there is a legal battle. Personal assets of partners can not be withheld.
c. Management Decisions: There could be a member-managed LLC where members make decisions in the business or a manager-managed LLC one or two non-members are employed to manage the business and make business decisions therein.
d. Taxation: Taxation is done once and profits realized are passed through to the personal income taxes of the members.
4. Corporations are set up by a group of businesspeople.
a. Ease of Formation: They are not easy to form as proper documentation which is governed by state laws must be adhered to.
b. Liability: There is a limited liability as shareholders are not held accountable for the debts and losses of the corporation.
c. Management: There are directors of the corporation who are elected by the shareholders, They make decisions for the corporation. Business officers are also appointed.
d. Tax Implications: There are lots of taxation requirements for which the corporation might seek advice from a taxation advisor to prevent double taxation.
Oriole Company uses flexible budgets. At normal capacity of 15000 units, budgeted manufacturing overhead is $120000 variable and $360000 fixed. If Oriole had actual overhead costs of $483000 for 18000 units produced, what is the difference between actual and budgeted costs
Answer:
$21,000 favorable
Explanation:
Given the above information,
Variable overhead rate = $120,000 / 15 units
= $8
Overhead variance = Real - Allocated
= $483,000 - (8 × 18,000 + $360,000 )
= $483,000 - $504,000
= $21,000 favorable
whatis the general termfor resources used by a business to produce good or services referred to as
Answer:
Factors of Production
Jack, an employee of Desert Sky, Inc., has gross salary for May of . The entire amount is under the OASDI limit of $118,500 and thus subject to FICA. He is also subject to federal income tax at a rate of %. Which of the following is a part of the journal entry for accrual of the employer payroll taxes? (Assume a FICAOASDI Tax of % and FICAMedicare Tax of %.) Jack's income to date exceeds the FUTA and SUTA tax income limits
Answer:
Credit to Cash for $4,995 is correct
Explanation:
here is a complete question
has a gross salary for May of $7,000. The entire amount is under the OASDI limit of $118,500 and thus subject to FICA. He is also subject to federal income tax at a rate of 21%. Which of the following is a part of the journal entry to record the disbursement of his net pay? (Assume a FICA-OASDI Tax of 6.2 % and FICA-Medicare Tax of 1.45%. Round the final answer to the nearest dollar.) A. debit to Cash for $4,995 B. debit to FICA Tax Payable of $4,995 O C. debit to Employee Income Tax Payable of $4,995 D. credit to Cash for $4,995
The computation of the amount that becomes the part for accrual the employer payroll taxes is shown below:
Gross Pay $7,000
Less: Deductions
Federal Income tax $1,470 ($7000 × 21%)
FICA-OASDI tax $434 ($7000 × 6.2%)
FICA-Medicare tax $102 ($7,000 × 1.45%)
Total Deductions 2006
Net pay $4,995
As a result of a decrease in the demand for U.S. dollars, there has been depreciation in the value of the U.S. dollar relative to Jamaican dollars. The depreciation in the U.S. dollar has benefitted some groups but harmed others. Indicate which of the groups are winners and which are losers from the standpoint of the depreciation of the U.S. dollar.
A. Todd, an American, going to visit Jamaica for spring break.
B. An investment bank in Jamaica that is interested in purchasing U.S. government bonds.
C. Goodyear, a U.S. based firm, selling car tires in Jamaica.
D. A family from Jamaica visiting relatives in the U.S. E. A firm from Jamaica selling handbags in the U.S.
F. U.S. based Hewlett-Packard, which is purchasing a high tech company in Jamaica.
Answer;
A. Todd, an American, going to visit Jamaica for spring break. - Loser
The US dollar depreciating means that it now takes more US dollars to buy Jamaican dollars. Todd will afford less Jamaican dollars when he goes to Jamaica.
B. An investment bank in Jamaica that is interested in purchasing U.S. government bonds. - Winner
The Investment bank will see that their domestic currency is stronger than it was therefore they can buy more US dollars. As a result it will be cheaper for the Investment bank to buy U.S. Government bonds.
C. Goodyear, a U.S. based firm, selling car tires in Jamaica. - Winners.
Goodyear will be winners because when they sell their tires in Jamaican dollars and then convert it to USD, they will.get more dollars from the transaction than before.
D. A family from Jamaica visiting relatives in the U.S. - Winners
As the Jamaican family will be able to buy more US dollars than before, they are winners.
E. A firm from Jamaica selling handbags in the U.S. - Losers.
As the firm sells in the US, they sell in US dollars. When they try to convert their sales to Jamaican dollars, they will get less than before.
F. U.S. based Hewlett-Packard, which is purchasing a high tech company in Jamaica. - Losers.
The depreciation of the US dollar means than HP will have to spend more dollars purchasing the company than before because the purchase price of the company will be stated in Jamaican dollars.
Welcome Inc. is a global Internet company that offers country-specific variations of its sites, keeping in mind the linguistic and religious differences between the countries. Welcome Inc. is most likely doing this to:
Answer:
reduce its cultural distance from the other countries
Explanation:
In this scenario, Welcome Inc. is most likely doing this to reduce its cultural distance from the other countries. Cultural distance refers to the differences in cultural values amongst countries, organizations, and stakeholders. In this case, Welcome Inc is trying to reduce this by making sure that they adjust their products and services to best accommodate these specific cultural differences in each country. In doing so they gain more loyal customers and increase their profits in each country which they do business in.
A publishing company sells 1,250,000 copies of certain books each year. It costs the company $1 to store each book for a year. Each time it must print additional copies, it costs the company $250 to set up the presses. How many books should the company produce during each printing in order to minimize its total storage and setup costs
Answer:
The Company should produce 25,000 books
Explanation:
The production size that minimizes total storage and setup costs is known as the optimum batch size.
Optimum batch size = √(2 × Annual Production Demand × Set up Cost) / Storage Cost per unit
= √ (2 × 1,250,000 × $250) / $1
= 25,000 books
Conclusion :
The Company should produce 25,000 books during each printing in order to minimize its total storage and setup costs.
TB MC Qu. 9-100 The following labor standards have been ... The following labor standards have been established for a particular product: Standard labor-hours per unit of output 9.6 hours Standard labor rate $ 13.40 per hour The following data pertain to operations concerning the product for the last month: Actual hours worked 7,400 hours Actual total labor cost $ 96,200 Actual output 950 units What is the labor efficiency variance for the month
Answer:
Direct labor time (efficiency) variance= $23,048 favorable
Explanation:
Giving the following information:
Standard labor-hours per unit of output 9.6 hours
Standard labor rate $ 13.40 per hour
Actual hours worked 7,400 hours
Actual output 950 units
To calculate the direct labor efficiency variance, we need to use the following formula:
Direct labor time (efficiency) variance= (Standard Quantity - Actual Quantity)*standard rate
Standard quantity= 9.6*950= 9,120
Direct labor time (efficiency) variance= (9,120 - 7,400)*13.4
Direct labor time (efficiency) variance= $23,048 favorable
The IMF policies that accompany most IMF loans are typically: Multiple Choice expansionary in the short run. procyclical in the long run. contractionary in the long run. contractionary in the short run.
Answer:
contractionary in the long run
Explanation:
contractionary fiscal policy reduces spending and raises taxes. it contract the economy by reducing the amount of money that is available for businesses and for people to spend. it could reduce government expenditure or increase taxes or in other times do both. useful during inflation
You haven't been able to spend much time talking with your team lately, but your workload should be back to normal soon. When you checked in with your team today, several associates joked about being surprised to see you.
Assuming all option are possible, what would you be most and least likely to do?
Answer and Explanation:
I would most likely do this:
Explain the issue to the team and praise them for their work in my absence. I would let them know there would be more time soon. It is very essential to praise and appreciate these efforts by the associates since I have been absent for a while and do not know what efforts they have been putting in.
I would be least likely to:
Talk to the manager to explain this situation or propose that my some of my commitments are eased for me to have more time with my team
f covered interest arbitrage opportunities do not exist, Group of answer choices interest rate parity holds. interest rate parity does not hold. interest rate parity holds, and arbitragers will be able to make risk-free profits. arbitragers will be able to make risk-free profits. interest rate parity does not hold, and arbitragers will be able to make risk-free profits.
Answer: interest rate parity holds
Explanation:
Covered interest arbitrage is a trading strategy that is used by an investor when the person whereby takes advantage of the differences in interest rate between two nations and invest in the currency that brings higher value.
If covered interest arbitrage opportunities do not exist, it simply means that interest rate parity holds.
As assistant to the CFO of Boulder Inc., you must estimate the Year 1 cash flow for a project with the following data:
Sales revenues $13,000
Depreciation $4,000
Other operating costs $6,000
Tax rate 35.0%
What is the Year 1 cash flow?
a. $6,962
b. $5,950
c. $7,438
d. $5,177
e. $7,378
Answer:
$5,950
Explanation:
Boulder incorporation reported the following data for year 1
Sales revenue= $13,000
Depreciation= $4,000
Other operating costs= $6,000
Tax rate= 35%
The first step is to calculate the EBIT
= sales revenue-operating costs-depreciation
= $13,000-$6,000-$4,000
= $3,000
Therefore, the cash flow for year 1 can be calculated as follows
= 3,000×35/100
= 3,000×0.35
= 1,050
= 3,000-1,050
= 1,950
Cash flow= 4,000+1,950
= $5,950
Hence the cash flow for year 1 is $5,950
The percent change in nominal gross domestic product (GDP) minus the percent change in price level equals
Answer:
Real GDP
Explanation:
Nominal GDP less percent change in price levels equals to real GDP
Nominal GDP is GDP calculated using current year prices
Real GDP is GDP using base year prices. it has been adjusted for inflation.
Gross domestic product is the total sum of final goods and services produced in an economy within a given period which is usually a year
Though not specifically cited in the producer's contract, the producer is expected to telephone prospects on the insurer's behalf to arrange sales appointments. This is an example of what kind of producer authority?
Answer:
Implied authority
Explanation:
Implied authority defines an authority with respect to agent that involves jurisdiction to perform the acts so that the objectives of the organization could be achieved. Also, it is a binding contract on other person behalf or company
Therefore according to the given situation, this is an example of implied authority
Michigan Corporation manufactured inventory in the United States and sold the inventory to customers in Canada. Gross profit from sale of the inventory was $500,000. Title to the inventory passed FOB: Destination. How much of the gross profit is treated as foreign source income for purposes of computing Michigan Corporation’s foreign tax credit in the current year?
Answer:
50% of gross profit = $250,000
Explanation:
The Tax Cuts and Jobs Act of 2017 changed some aspects of Section 863(b), but aspects regarding US companies producing locally and exporting their production to foreign countries remains the same. US companies can allocate 50% of gross profit as foreign source income, while the other 50% must be allocated as domestic income due to production related activities.
The GoT cups are a fast seller and you need to ensure that you have enough rolls of paper to fulfill demand. The first stage in the process is to determine the total cost of the current inventory ordering model. Given the following information, how many rolls should they order to minimize costs?H: $1.75 per unitD: 500 rolls per monthQ: 100 units ordered at a timeS: $25 per order
Answer:
EOQ = 414 rolls
Explanation:
In order to calculate the number of orders to minimize the cost, we should calculate that by using the Economic order quantity model.
DATA
Holding cost = $1.75/unit
Annual demand = 500 rolls x 12 = 6000 rolls
Ordering cost = $25
Formula
EOQ =[tex]\sqrt{\frac{2Cod}{Ch} }[/tex]
Where
Co = ordering cost
D = Annual demand
Ch = Holding cost
Solution
EOQ = [tex]\sqrt{\frac{2(6000)(25)}{1.75} }[/tex]
EOQ = [tex]\sqrt{\frac{300000}{1.75} }[/tex]
EOQ = 414 rolls
They should order 414 rolls to minimize the cost.
Answer:
119 units
Explanation:
The economic order quantity is the minimum amount of inventory that a seller must keep to demand and lower the holding cost. The ordering cost is $25 per order. Holding cost is $1.75 per unit. The total demand is 500 units per month. The economic order quantity that will minimize the cost of the GoT cups is
EOQ = [tex]\sqrt{\frac{2*Demand*ordering cost}{Holding cost} }[/tex]
EOQ is 119 units.
Harver company currently produces component RX5 for its sole product. The current cost per unit to manufacture the required 58000 units of RX5 follows. Direct materials and direct labor are 100% variable. Overhead is 70% fixed. An outside supplier has offered to supply the 58000 units of RX5 for 18.50 per unit. determine the total incremental cost making 58000 units of Rx5. Determine the total incremental cost of buying 58000 units of RX5. Should the company make or buy RX%
Answer:
Decision = Make
Explanation:
The incremental cost to buy and the incremental cost to make can be calculated as follows
DATA
Direct material = $4 (100% variable)
Direct labor = $8 (100% variable)
Overhead = $9 ( 70% fixed)
Total cost per unit = $21
Offered price = $18.5 per unit
Total units = 58,000
Solution
Incremental cost of making
Direct material ( 58,000 x $4) = $232,000
Direct labor (58,000 x $8) = $464,000
Overhead ( 58,000 x $9 x 30%) = $156,600
Total cost = $825,600
Incremental cost of buying
Total cost = No. of units x offered price
Total cost = 58,000 x $18.5
Total cost = $1,073,000
Decision: The company should make the product as the total cost to buy is $247,400 higher than the cost to make.
