Question

1. Company currently has the capacity to manufacture 250,000 widgets a year and 100,000 gadgets a...

1. Company currently has the capacity to manufacture 250,000 widgets a year and 100,000 gadgets a year in its factory. Company has the following costs related to manufacturing and selling 200,000 widgets:

Scenario 1

Scenario 2
  1. Direct materials and direct labor

$840,000
  1. Variable manufacturing overhead

$180,000
  1. Rent on equipment only used for the widgets

$40,000
  1. Allocated share of depreciation on factory

$100,000
  1. Annual salary of widget production manager

$70,000
  1. Variable selling costs (commissions)

$60,000
  1. Allocated share of fixed selling costs

$80,000

Total

$1,370,000
  1. Scenario 1: Assume Firm asks Company to manufacture a special order of 4,000 widgets. Indicate in the column labeled ‘Scenario 1’ whether each cost is relevant (R) or not relevant (NR) for this special order decision.

  1. Scenario 2: Assume Company is considering outsourcing production of the widget product line. They would purchase the widgets from a supplier. The widget production manager will be laid off. Sales of the widget are expected to stay at 200,000 units. Indicate in the column labeled ‘Scenario 2’ whether each cost is relevant (R) or not relevant (NR) for making the decision to outsource the widget production.
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