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ACC - Sunshine State Fruit Company

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Question;6-A1;Sunshine State Fruit Company sells premium-quality oranges and other citrus fruits by mail order. Protecting the fruit during shipping is important so the company has designed and produces shipping boxes. The annual cost to make $80,000 boxes is;Materials $112,000;Labor 20,000;Indirect manufacturing cost;Variable 16,000;Fixed 60,000;Total $208,000;Therefore, the cost per box averages $2.60;Suppose Weyerhauser submits a bid to supply Sunshine State with boxes for $2.10 per box. Sunshine State must give Weyerhauser the box design specifications, and the boxes will be made according to those specs.;1. How much if any, would Sunshine State save by buying the boxes for Weyerhauser?;2. What subjective factors should affect Sunshine State?s decision about whether to make or buy the boxes?;3. Suppose all the fixed costs represent depreciation on equipment that was purchased for $600,000 and is just about at the end of its 10-year life. New replacement equipment will cost $800,000 and is also expected to last 10 years. In this case, how much, if any, would Sunshine State save by buying the boxes from Weyerhauser?

 

Paper#44533 | Written in 18-Jul-2015

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