1.
Feast Corporation currently makes the rolls that it uses for its sandwiches, It uses 50,000 rolls
annually. The costs to make the rolls are given below:
Material= 0.04 per roll
Labor = 0.03 per roll
Variable overhead = 0.02 per roll
Fixed overhead = 0.07 per roll
A potentail supplier has offered to sell Feast the rolls for 0.11 each. If the rolls are pruchased,
20% of the fixed overheas could be avoided. If Feast accepts the offer it will be?
Solution
Material per roll                      0.04 Labour per roll
                     0.03 Variable Overhead per roll
                     0.02 Variable cost per roll
                     0.09 Rolls required annually
          50,000.00 Total Variable Cost(50,000*.09)
             4,500.00 Fixed Costs per unit Â
                     0.07 Total Fixed Costs(50,000*.07)
             3,500.00 Total Costs of producing(Fixed Costs +Variable Costs)
             8,000.00 Purchase cost per roll Â
                     0.11 Rolls required annually
          50,000.00 Total Purchase cost(50,000*.11)
             5,500.00 Fixed Costs (3,500*80%) as 20% can be avoided
             2,800.00 Total Costs of purchasing (Fixed Costs + Purchase
costs) Â Â Â Â Â Â Â Â Â Â Â Â Â 8,300.00 No feasts offer should not be accepted as cost of
producing is $8,000 and cost of purchasing is $8,300