Sanchez & Sons is a Mexican baked-goods manufacturing firm. Sanchez has two main divisions: Packaged Mixes and Finished Products. The Finished Products division is considering purchasing the mix for its churros from an outside supplier.
The Packaged Mixes department incurs the following costs for each batch of churros mix:
Direct Materials: $300
Direct Labor: $200
Variable Overhead: $200
Fixed Overhead: $150
In addition to the cost of the churros mix, the Finished Products Department would incur the following costs for each batch of churros:
Direct Materials: $150
Direct Labor: $140
Variable Overhead: $300
Fixed Overhead: $100
Currently, the Packaged Mixes department has excess capacity. Sanchez currently sells the mix for $1,000 per batch. The Finished Products department is able to purchase the mix for $650 from an outside supplier. The finished churros from each batch will sell for a total of $1,500.
Based on the decision that will maximize the overall benefit to Sanchez & Sons, what is the contribution margin per batch that can be realized by the Finished Products department?

Question

Sanchez & Sons is a Mexican baked-goods manufacturing firm. Sanchez has two main divisions: Packaged Mixes and Finished Products. The Finished Products division is considering purchasing the mix for its churros from an outside supplier. 
The Packaged Mixes department incurs the following costs for each batch of churros mix:
Direct Materials: $300
Direct Labor: $200
Variable Overhead: $200
Fixed Overhead: $150
In addition to the cost of the churros mix, the Finished Products Department would incur the following costs for each batch of churros:
Direct Materials: $150
Direct Labor: $140
Variable Overhead: $300
Fixed Overhead: $100
Currently, the Packaged Mixes department has excess capacity. Sanchez currently sells the mix for $1,000 per batch. The Finished Products department is able to purchase the mix for $650 from an outside supplier. The finished churros from each batch will sell for a total of $1,500.
Based on the decision that will maximize the overall benefit to Sanchez & Sons, what is the contribution margin per batch that can be realized by the Finished Products department?

Quizplus · Accepted Answer

The Answer of Sanchez & Sons is a Mexican baked-goods manufacturing firm. Sanchez has two main divisions: Packaged Mixes and Finished Products. The Finished Products division is considering purchasing the mix for its churros from an outside supplier. 
The Packaged Mixes department incurs the following costs for each batch of churros mix:
Direct Materials: $300
Direct Labor: $200
Variable Overhead: $200
Fixed Overhead: $150
In addition to the cost of the churros mix, the Finished Products Department would incur the following costs for each batch of churros:
Direct Materials: $150
Direct Labor: $140
Variable Overhead: $300
Fixed Overhead: $100
Currently, the Packaged Mixes department has excess capacity. Sanchez currently sells the mix for $1,000 per batch. The Finished Products department is able to purchase the mix for $650 from an outside supplier. The finished churros from each batch will sell for a total of $1,500.
Based on the decision that will maximize the overall benefit to Sanchez & Sons, what is the contribution margin per batch that can be realized by the Finished Products department?

Sanchez & Sons Is a Mexican Baked-Goods Manufacturing Firm