Solved: Louisiana Luggage Components manufactures

handles for suitcases

Louisiana Luggage Components manufactures handles for suitcases

Louisiana Luggage Components manufactures handles for suitcases and other luggage.
Attaching each handle to the luggage requires, depending on the size of the luggage piece,
between two and six standard fasteners, which the company has historically produced. The
costs to produce one fastener (based on capacity operation of 4,000,000 units per year) are:
Direct material ........ $0.08
Direct labor .......... 0.06
Variable factory overhead ... 0.04
Fixed factory overhead ....... 0.07
Total ............. $0.25
Fixed factory overhead includes $100,000 of depreciation on equipment for which there is no
alternative use and no market value. The balance of the fixed factory overhead pertains to the
salary of the production supervisor, Jeff Wittier. Wittier has a lifetime employment contract and
the skills that could be used to replace Brenda Gibbons, supervisor of floor maintenance. She
draws a salary of $50,000 per year but is due to retire from the company.
Saratoga Suitcase Co. recently approached Louisiana Luggage Components with an offer to
supply all required fasteners for $0.19 per unit. Anticipated sales demand for the coming year
will require 4,000,000 fasteners.
a. Identify the costs that are relevant in this outsourcing decision.
b. What is the total annual advantage or disadvantage (in dollars) of outsourcing the fasteners
rather than making them?
c. What qualitative factors should be taken into account in making this decision?

Louisiana Luggage Components manufactures handles for suitcases

ANSWER
https://solvedquest.com/louisiana-luggage-components-manufactures-handles-for-suitcases/

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