Tamworth Truck manufactures part YYY used in several of its truck models. 10,000 units are produced each year with production costs as follows: Direct materials $ 45,000 Direct manufacturing labor 15,000 Variable support costs 35,000 Fixed support costs 25,000 Total costs $120,000 Tamworth Truck has the option of purchasing part YYY from an outside supplier at $11.20 per unit. If part YYY is outsourced, 40% of the fixed costs cannot be immediately converted to other uses (i.e. cannot be avoided). a. Describe ‘avoidable’ costs. What amount of the YYY production costs is avoidable? b. Should Tamworth Truck outsource YYY? Why or why not? c. What other items should Tamworth Truck consider before outsourcing any of the parts it currently manufactures?
Question 1: (Total 9 Marks) Tamworth Truck manufactures part YYY used in several of its truck models. 10,000 units are produced each year with production costs as follows: Direct materials?$ 45,000??Direct manufacturing labor?15,000??Variable support costs?35,000??Fixed support costs?25,000??Total costs?$120,000??Tamworth Truck has the option of purchasing part YYY from an outside supplier at $11.20 per unit. If part YYY is outsourced, 40% of the fixed costs cannot be immediately converted to other uses (i.e. cannot be avoided). a. Describe ‘avoidable’ costs. What amount of the YYY production costs is avoidable? b. Should Tamworth Truck outsource YYY? Why or why not? c. What other items should Tamworth Truck consider before outsourcing any of the parts it currently manufactures? Question 2: (Total 11 Marks) Tamworth Pet Corporation manufactures two models of grooming stations, a standard and a deluxe model. The following activity and cost information has been compiled: Product?Number of Setups?Number of Components?Direct Labor Hours??Standard?3?30?650??Deluxe?7?50?150???????Overhead Costs?$20,000?$60,000?? Required: Assume a traditional costing system applies the $80,000 of overhead costs based on direct labor hours. a. What is the total amount of overhead costs assigned to the standard model? b. What is the total amount of overhead costs assigned to the deluxe model? AND, Assume an activity based costing system is used and that the number of setups and the number of components are identified as the activity cost drivers for overhead. c. What is the total amount of overhead costs assigned to the standard model? d. What is the total amount of overhead costs assigned to the deluxe model? e. Explain the difference between the costs obtained from the traditional costing system and the ABC system. Which system provides a better estimate of costs? Why? Question 3: (Total 13 Marks) Tamworth Company has the following information: Month?Budgeted…
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AFM112.docx