Question

Rundle Electronics currently produces the shipping containers it uses to deliver the electronics products it sells. The monthly cost of producing 9,200 containers follows: Unit-level materials $ 6,000 Unit-level labor 6,400 Unit-level overhead 3,300 Product-level costs* 8,100 Allocated facility-level costs 27,500 *One-third of these costs can be avoided by purchasing the containers. Russo Container Company has offered to sell comparable containers to Rundle for $2.60 each. Required Calculate the total relevant cost. Should Rundle continue to make the containers? Rundle could lease the space it currently uses in the manufacturing process. If leasing would produce $12,300 per month, calculate the total avoidable costs. Should Rundle continue to make the containers?

Answer 1

To calculate the total relevant cost, you need to add up the unit-level materials, labor, and overhead, as well as the product-level costs and the allocated facility-level costs. To determine if Rundle should continue making the containers, compare the total relevant cost to the cost of purchasing the containers from Russo Container Company. To calculate the total avoidable costs if Rundle leased the space, subtract the monthly lease amount from the total relevant cost. Compare the total avoidable costs to the cost of purchasing the containers to determine if Rundle should continue making them.

Step-by-step explanation:

To calculate the total relevant cost, we need to add up the unit-level materials, labor, and overhead, as well as the product-level costs and the allocated facility-level costs. The total relevant cost is as follows:

• Unit-level materials: $6,000
• Unit-level labor: $6,400
• Unit-level overhead: $3,300
• Product-level costs: $8,100
• Allocated facility-level costs: $27,500

Add all these costs together to get the total relevant cost.

To determine if Rundle should continue making the containers, we need to compare the total relevant cost to the cost of purchasing the containers from Russo Container Company. If the total relevant cost is less than the cost of purchasing the containers, it would be more cost-effective for Rundle to continue making the containers. If the total relevant cost is greater than the cost of purchasing the containers, it would be more cost-effective for Rundle to buy the containers from Russo Container Company.

To calculate the total avoidable costs if Rundle were to lease the space it currently uses in the manufacturing process, we need to subtract the monthly lease amount of $12,300 from the total relevant cost. The total avoidable costs would be the difference between the total relevant cost and the lease amount.

To determine if Rundle should continue making the containers after leasing the space, we would compare the total avoidable costs to the cost of purchasing the containers. If the total avoidable costs plus the cost of leasing the space is less than the cost of purchasing the containers, it would be more cost-effective for Rundle to continue making the containers. If the total avoidable costs plus the cost of leasing the space is greater than the cost of purchasing the containers, it would be more cost-effective for Rundle to buy the containers from Russo Container Company.

Answer 2

1.Total avoidable cost =$18,400

2.Purchasing price = $23,920

3.Total avoidable cost = $30,700

4. No.

Step-by-step explanation:

As per the data given in the question,

(1).

Total avoidable cost:

Unit-level materials = $6,000

Unit-level labor = $6,400

Unit-level overhead = $3,300

Product-level cost = $8,100/3 = $2,700

Total avoidable cost = $6,000 + $6,400+ $3,300 + $2,700 = $18,400

(2).

Since cost of buying is more than production therefore Rundle Electronics should continue production

Purchase price = 9,200 × $2.6

=$23,920

(3)

if leasing produce $12,300 per month, than

Total avoidable cost = $12,300 + $18,400

= $30,700

(4)

No, It is better to purchase rather than production because purchasing price is less than production amount.