Koshka produces corn chips. The cost of one batch is below: Direct materials $18.00 Direct labor 13.00 Variable overhead 11.00 Fixed overhead 14.00 An outside supplier has offered to produce the corn chips for $25 per batch. How much will Koshka save if it accepts the make or buy offer

Koshka

If Koshka accepts the make or buy offer, it will save $17 per batch.

Explanation:

a) Data and Calculations:

Cost of making corn chips per batch:

Direct materials   $18.00

Direct labor            13.00

Variable overhead 11.00

Fixed overhead    14.00

Total costs        $56.00

Relevant costs of making the corn chips batch in-house:

Direct materials         $18.00

Direct labor                  13.00

Variable overhead       11.00

Total variable costs $42.00

Relevant cost of buying from the outside supplier per batch = $25

Savings = $17 ($42 - $25)

b) Fixed overhead is not a relevant cost because it will still be incurred whether Koshka makes or buys the corn chips batch.  The relevant costs are the costs that will change as a result of the choice made.

1   all nations face the problem of scarcity because there are limited resources and unlimited wants. nations do not have enough factors of production to produce everything that their population wants. entrepreneurial resources initiate businesses to make new goods and services; labor resources produce goods and services.

2 there are four factors of production: natural resources, labor resources, capital resources, and entrepreneurial resources. natural resources are raw materials from nature that are used to produce goods. trees, water, and grains are natural resources. some natural resources, such as wheat and cattle, are renewable

3 wants

things that you do not need to have in order to survive, but would like to have

needs

things that you must have in order to survive

goods

physical products

services

tasks that a business perform for customers

resources

items that people can use to make or obtain what they need or want

determine

to settle or decide by choice of alternatives or possiblities

4 i really dont know