Question

Thornton Electronics currently produces the shipping containers it uses to deliver the electronics products it sells....

Thornton Electronics currently produces the shipping containers it uses to deliver the electronics products it sells. The monthly cost of producing 9,300 containers follows. Unit-level materials $ 5,700 Unit-level labor 6,400 Unit-level overhead 3,600 Product-level costs* 10,800 Allocated facility-level costs 26,500 *One-third of these costs can be avoided by purchasing the containers. Russo Container Company has offered to sell comparable containers to Thornton for $2.80 each.

Required Calculate the total relevant cost. Should Thornton continue to make the containers? Thornton could lease the space it currently uses in the manufacturing process. If leasing would produce $11,800 per month, calculate the total avoidable costs. Should Thornton continue to make the containers?


a.Total relevant cost

Should Thornton continue to make the containers?

b.Total avoidable cost

Should Thornton continue to make the containers?

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Homework Answers

Answer #1

a) Total relevant cost

Make Buy
Direct material 5700
Labor 6400
Overhead 3600
Product level cost (10800/3) 3600
Purchase cost (9300*2.8) 26040
Total relevant cost 19300 26040

Yes, Continue to make the container

b) Total avoidable cost

Make Buy
Direct material 5700
Labor 6400
Overhead 3600
Product level cost (10800/3) 3600
Opportunity cost 11800
Purchase cost (9300*2.8) 26040
Total relevant cost 31100 26040

No Should not Continue to make the container

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