Existing fixed manufacturing overhead costs are not relevant in deciding whether to accept a special

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Iv. 10.00 points Problem 9—16 Determinlng Whether to Make or Buy (L01 – CC4) 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 ofthe game. The company is at the final developmentstage of a new game railed ”inverted Wortd” based on a recent fictional book and subsequent film of the same name. Since it is important that the game he on the shelves quickly to capitalize on the advertisingand promotion done by the movie studio for the film. the manager of TBT is considering an offer fromanother game manufacturer to supply the game boards tor $510 per board. This is a common practice inthe game industry as the life of a toyI is very short and there is a need to act quickly to get the product tomarket belore demand shifts. TBT’s cost accountant has developed the following cost estimates for the production of the game board: Coat perlJnitoflnverted WorldDirect material 5320Direct labour 030Production overhead 1 .98Corporate overhead (1.48Cost of game board $6.46 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 permonth 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 15% of the direct materials charge. H._..l_..l.

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