Blossom Industries manufactures 87000 digital cameras each year. Blossom has been producing the lenses internally. However, late last year the company received an offer to produce the 156000 lenses the company uses each year for a total contract price of $392000. When Blossom manufactures the lenses internally, direct materials cost $1 per lens, direct labor is $1 per lens, and variable overhead is $0 per lens. Blossom's total overhead is $122000. If the lens were purchased, $40000 of fixed overhead could be avoided. Should Blossom purchase or produce the lenses, and what is the savings associated with the decision? Produce the lenses and save $2000. O Purchase the lenses and save $2000. O Purchase the lenses and save $40000. O Produce the lenses and save $40000.
Blossom Industries manufactures 87000 digital cameras each year. Blossom has been producing the lenses internally. However, late last year the company received an offer to produce the 156000 lenses the company uses each year for a total contract price of $392000. When Blossom manufactures the lenses internally, direct materials cost $1 per lens, direct labor is $1 per lens, and variable overhead is $0 per lens. Blossom's total overhead is $122000. If the lens were purchased, $40000 of fixed overhead could be avoided. Should Blossom purchase or produce the lenses, and what is the savings associated with the decision? Produce the lenses and save $2000. O Purchase the lenses and save $2000. O Purchase the lenses and save $40000. O Produce the lenses and save $40000.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Blossom Industries manufactures 87000 digital cameras each year. Blossom has been producing the lenses
internally. However, late last year the company received an offer to produce the 156000 lenses the
company uses each year for a total contract price of $392000. When Blossom manufactures the lenses
internally, direct materials cost $1 per lens, direct labor is $1 per lens, and variable overhead is $0 per lens.
Blossom's total overhead is $122000. If the lens were purchased, $40000 of fixed overhead could be
avoided. Should Blossom purchase or produce the lenses, and what is the savings associated with the
decision?
Produce the lenses and save $2000.
O Purchase the lenses and save $2000.
O Purchase the lenses and save $40000.
O Produce the lenses and save $40000.
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