Structuring a Make-or-Buy Problem Fresh Foods, a large restaurant chain, needs to determine if it would be cheaper to produce 5,000 units of its main food ingredient for use in its restaurants or to purchase them from an outside supplier for $12 each. Cost information on internal production includes the following: Total Cost Unit Cost
Direct materials $25,000 $ 5.00
Direct labor 15,000 3.00
Variable manufacturing overhead 7,500 1.50
Variable marketing overhead 10,000 2.00
Fixed plant overhead 30,000 6.00
Total $87,500 $17.50
Fixed overhead will continue whether the ingredient is produced internally or externally. No additional costs of purchasing will be incurred beyond the purchase price. If required, round your answers to the nearest whole number.
Required:
1. What are the alternatives for Fresh Foods?
Make the ingredient in house or buy it externally.
2. Which alternative is more cost effective and by how much? (Use total cost when giving your answer.)
Make $
3. Now assume that 40% of the fixed overhead can be avoided if the ingredient is purchased externally. Which alternative is more cost effective and by how much? (Use total cost when giving your answer.)
Buy $

2. taxes paid for a given income level rosa is getting ready to do her taxes. she is single and lives in denver. rosa earned $60,000 in taxable income in 2015. she reviews the following table, which shows the irs tax rates for a single taxpayer in 2015. on annual taxable the tax rate (percent) up to $9,225 10.0 from $9,225 to $37,450 15.0 from $37,450 to $90,750 25.0 from $90,750 to $189,300 28.0 from $189,300 to $411,500 33.0 from $411,500 to $413,200 35.0 over $413,200 39.6 based on the irs table, rosa calculates that her marginal tax rate is when her annual taxable income is $60,000. rosa calculates that she owes in income taxes for 2015. rosa then calculates that her average tax rate is , based on the annual income level and the amount of taxes she owes for 2015. after figuring out what she owes in taxes in 2015, rosa decides to ask an accountant for tax advice. the accountant claims that he has found a legal way to shelter $4,000 of taxable income from the federal government. the maximum amount that rosa is willing to pay to learn this strategy and reduce her taxable income by $4,000 is . (hint: sheltering some income means finding a legal way to avoid being charged income tax on that income. for example, someone who has $50,000 in taxable income and shelters $10,000 pays income tax on only $40,000.)