A Florist Produces Table Settings for Weddings

question 108

Essay

A florist produces table settings for weddings.Based on an annual volume of 10,000 units it incurs $100,000 in fixed manufacturing costs.Variable costs per unit are $16 for direct materials, $3 for direct manufacturing labour, and $14 for variable factory overhead.Another company has offered to supply empty baskets for the settings for $8, with a minimum annual order of 5,000 units.If the florist accepts the offer, it will be able to reduce variable labour and overhead costs by 50 percent.The materials for the empty baskets will cost $4 if the florist assembles them.Required:
a.Determine if they should make or assemble the empty baskets.
b.Should they make or assemble the empty baskets if they could rent the space that the basket assembly requires for $16,000 per year to another company?

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Definitions:

International Labour Standards

Norms and regulations established by international bodies to ensure that workers worldwide enjoy minimum levels of decency, safety, and rights at work.

Unionized

A workforce or organization where employees are members of a union which represents their interests in negotiations with management.

Political Party

An organized group of people with at least roughly similar political aims and opinions, that seeks to influence public policy by getting its candidates elected to public office.

Bread-and-Butter

Refers to basic, essential aspects of something, often related to source of income or fundamental needs.