Assume that Nantucket Nectars reports the following costs to make 17.5 oz. bottles for its Juice
Cocktails:
Nantucket Nectars Company
Cost of Making 17.5 Ounce Bottles
Total Cost for Cost per
1,000,000 Bottles Bottle
Direct materials $ 80,000 $.080
Direct labor 30,000 .030
Variable factory overhead 60,000 .060
Fixed factory overhead 85,000 .085
Total costs $255,000 $.255
Another manufacturer offers to sell Nantucket Nectars the bottles for $.25. The capacity now used to
make bottles will become idle if the company purchases the bottles. Further, one supervisor with a
salary of $60,000, a fixed cost, would be eliminated if the bottles were purchased. Prepare a schedule
that compares the costs to make and buy the 17.5 oz. bottles. Should Nantucket Nectars make or buy
the bottles?
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