The Brain Teasers TBT specializes in creating and manufactur

The Brain Teasers (TBT) specializes in creating and manufacturing board games for youth. Each game has a unique game board to accompany the other pieces of the game. The company is at the final development stage of a new game called \"Inverted World\" based on a recent fictional book and subsequent film of the same name. Since it is important that the game be on the shelves quickly to capitalize on the advertising and promotion done by the movie studio for the film, the manager of TBT is considering an offer from another game manufacturer to supply the game boards for $9.50 per board. This is a common practice in the game industry as the life of a toy is very short and there is a need to act quickly to get the product to market before demand shifts TBT\'s cost accountant has developed the following cost estimates for the production of the game board Cost per Unit of Inverted World Direct material Direct labour Production overhead Corporate overhead $4.00 1.50 3.64 0.70 Cost of game board $9.84 The accountant has also provided the following information . The board can be produced using current machinery that has a capacity to produce 500,000 units per month and is 50% utilized . The anticipated demand for the game will not exceed 50,000 units a month, according to the sales team . Half of the production overhead is fixed ·The corporate overhead allocation is based on 17.5% of the direct materials charge Required Compute monthly net benefit of making the game boards than buy the game boards from the supplier. (Do not round intermediate calculations.) Net benefit of making the game boards per month State whether TBT should make the game boards or buy from the supplier

Solution

Relevant cost of making the game board: Number of units to be produced and sold 50,000 units Relevant cost of making the game boards: Amount $ Direct material (50,000 units @$4.00 per unit) 200,000 Direct Labour (50,000 units @$1.50 per unit) 75,000 Variable Production PH (50,000 units @$1.82 per unit) 91000 Total relevant cost of making 50,000 game boards 366000 Relevant cost of buying the boards: Supplier cost(50,000 units @$ 9.50 per unit) 475000 Net benefit of making the game boards $109,000 Note: Only relevant cost of making the game boards shall be considered. Note: Fixed Production OH is bound to be incurred irrespective of decision. Hence, shall be ignored Note: Allocated Corporate overheads are sunk cost already incurred. These cost shall not be taken in decision making