Central Coffee Co. has the following unit costs associated with the production of one of its products based on roasting 28,000 pounds of coffee. Direct materials (coffee) Direct materials (packaging) Direct labor Variable overhead Fixed overhead 3.00 0.30 1.00 0.20 3.00 7.50 An independent coffee roaster has approached Central’s management team and offered to roast and package the coffee for $5.75 per pound (including shipping costs). This outsourcing would allow Central to reduce total fixed overhead costs by 30%. Required: a. Should Central roast and package this product itself or should the production be outsourced to the independent roaster? (Be sure to show your supporting analysis.) b. Assuming the 28,000 pounds of volume, at what price per pound would Central’s management be indifferent about their decision to roast and package the product themselves or outsource it? c. Assume that the volume of demand and output was only 20,000, but costs remained within the relevant range of activity. Should Central roast and package this product itself or should the production be outsourced to the independent roaster? (Be sure to show your supporting analysis.)
Central Coffee Co. has the following unit costs associated with the production of one of its products based on roasting 28,000 pounds of coffee. Direct materials (coffee) Direct materials (packaging) Direct labor Variable overhead Fixed overhead 3.00 0.30 1.00 0.20 3.00 7.50 An independent coffee roaster has approached Central’s management team and offered to roast and package the coffee for $5.75 per pound (including shipping costs). This outsourcing would allow Central to reduce total fixed overhead costs by 30%. Required: a. Should Central roast and package this product itself or should the production be outsourced to the independent roaster? (Be sure to show your supporting analysis.) b. Assuming the 28,000 pounds of volume, at what price per pound would Central’s management be indifferent about their decision to roast and package the product themselves or outsource it? c. Assume that the volume of demand and output was only 20,000, but costs remained within the relevant range of activity. Should Central roast and package this product itself or should the production be outsourced to the independent roaster? (Be sure to show your supporting analysis.)
Central Coffee Co. has the following unit costs associated with the production of one of its products based on roasting 28,000 pounds of coffee. Direct materials (coffee) Direct materials (packaging) Direct labor Variable overhead Fixed overhead 3.00 0.30 1.00 0.20 3.00 7.50 An independent coffee roaster has approached Central’s management team and offered to roast and package the coffee for $5.75 per pound (including shipping costs). This outsourcing would allow Central to reduce total fixed overhead costs by 30%. Required: a. Should Central roast and package this product itself or should the production be outsourced to the independent roaster? (Be sure to show your supporting analysis.) b. Assuming the 28,000 pounds of volume, at what price per pound would Central’s management be indifferent about their decision to roast and package the product themselves or outsource it? c. Assume that the volume of demand and output was only 20,000, but costs remained within the relevant range of activity. Should Central roast and package this product itself or should the production be outsourced to the independent roaster? (Be sure to show your supporting analysis.)
Central Coffee Co. has the following unit costs associated with the production of one of its products based on roasting 28,000 pounds of coffee. Direct materials (coffee) Direct materials (packaging) Direct labor Variable overhead Fixed overhead 3.00 0.30 1.00 0.20 3.00 7.50 An independent coffee roaster has approached Central’s management team and offered to roast and package the coffee for $5.75 per pound (including shipping costs). This outsourcing would allow Central to reduce total fixed overhead costs by 30%. Required: a. Should Central roast and package this product itself or should the production be outsourced to the independent roaster? (Be sure to show your supporting analysis.) b. Assuming the 28,000 pounds of volume, at what price per pound would Central’s management be indifferent about their decision to roast and package the product themselves or outsource it? c. Assume that the volume of demand and output was only 20,000, but costs remained within the relevant range of activity. Should Central roast and package this product itself or should the production be outsourced to the independent roaster? (Be sure to show your supporting analysis.)
