Maurice Tutor

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Category > Accounting Posted 25 Sep 2017 My Price 10.00

Power Skateboards

(Make or Buy Decision) Power Skateboards sold 15,000 skateboards during 2011, but the company expects to sell 20,000 skateboards in 2012. The company is proud that all components of its skateboards are made in-house. Overall, Power Skateboards is known by the boarding community as a quality skateboard manufacturer. During 2011, the company incurred the following costs to manufacture the skateboard wheels:

Direct materials

$2 per wheel

Direct labour

$1 per wheel

Variable overhead

$0.50 per wheel

Set-up costs

$2,000 per batch

Quality control

$250 per batch

Depreciation

$10,000 per year

Power Skateboards received an offer from an outside supplier of skateboard wheels to supply wheels at a cost of $4.50 per wheel.

Additional information: Depreciation costs relate to the manufacturing plant where the skateboards are made. A percentage share of total depreciation is assigned to manufacturing wheels based on the Wheel Division's share of the physical space in the plant. The set-up and quality control costs are based on each batch of wheels that is manufactured; at this time, Power Skateboards manufactures 5,000 wheels in each batch. Both set-up and quality control costs will be avoided if the outside supplier sells the wheels to Power Skateboards.

  1. Assume that the company purchases the wheels from the outside supplier and the plant where the wheels are manufactured remains idle. If this is the case, what is the financial benefit or cost of purchasing the wheels outside?
  2. Assume that the company will be able to use the idle facilities to provide custom painting on the skateboard decks if the wheels are purchased outside. Power Skateboards anticipates that 5,000 skateboards per year will feature custom painting, for a total price of $25 per board and at variable costs of $18 per board. What is the financial benefit or cost of purchasing the wheels outside but using the idle space to provide a custom painting service?
  3. What other non-financial factors should be considered before Power Skateboards decides to outsource skateboard wheels?

Answers

Maurice Tutor
(5)
Status NEW Posted 25 Sep 2017 05:09 PM My Price 10.00

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