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karotop02 karotop02
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Vista Industries manufactures 75,000 digital cameras each year. Vista has been producing the lenses internally. However, late last year the company received an offer to produce the 150,000 lenses the company uses each year for a total contract price of $380,000. When Vista manufactures the lenses internally, direct materials cost $1.05 per lens, direct labor is $0.65 per lens, and variable overhead is $0.30 per lens. Vista's total overhead is $110,000. If the lens were purchased, $28,000 of fixed overhead could be avoided. Should Vista purchase or produce the lenses, and what is the savings associated with the decision?

▸ Produce the lenses and save $52,000.

▸ Purchase the lenses and save $52,000.

▸ Purchase the lenses and save $2,000.

▸ Produce the lenses and save $2,000.
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Managerial Accounting

Managerial Accounting


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cblack14cblack14
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Produce the lenses and save $52,000.

$380,000 - [(($1.05 + $0.65 + $0.30) × 150,000) + $28,000] = $52,000 saved by producing the lenses
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