Schopp Inc. has been manufacturing its own shades for its table lamps. The compan is currently operating at 100% of capacity, and variable manufacturing overhead is charged to production at the rate of 70% of direct labor cost. The direct materials and direct labor cost per unit to make the lamp shades are $4 and $5, respectively. The fixed manufacturing overhead is $45,000. Normal production is 40,000 table lamps per year. A supplier offers to make the lamp shades at a price $12.75 per unit. If Schopp Inc. accepts the supplier's offer, all variable manufacturing costs will be eliminated, but the fixed manufacturing overhead currently being charged to the lamp shades will have to be absorbed by other products. Instructions (a) Prepare the incremental analysis for the decision to make or buy the lamp shades. (b) Should Schopp Inc. buy the lamp shades? (c) Would you answer be different in (b) if the productive capacity released by not making the lamp shades could be used to produce income of $25,000.

Schopp Inc. has been manufacturing its own shades for its table lamps. The compan is currently operating at 100% of capacity, and variable manufacturing overhead is charged to production at the rate of 70% of direct labor cost. The direct materials and direct labor cost per unit to make the lamp shades are $4 and $5, respectively. The fixed manufacturing overhead is $45,000. Normal production is 40,000 table lamps per year. A supplier offers to make the lamp shades at a price $12.75 per unit. If Schopp Inc. accepts the supplier's offer, all variable manufacturing costs will be eliminated, but the fixed manufacturing overhead currently being charged to the lamp shades will have to be absorbed by other products. Instructions (a) Prepare the incremental analysis for the decision to make or buy the lamp shades. (b) Should Schopp Inc. buy the lamp shades? (c) Would you answer be different in (b) if the productive capacity released by not making the lamp shades could be used to produce income of $25,000.

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter10: Short-term Decision Making

Section: Chapter Questions

Problem 7PB: Remarkable Enterprises requires four units of part A for every unit of Al that it produces....

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