DIFFERENTIAL ANALYSIS AND DECISION MAKING Heavy Metals produces various electronics items for use in heavy machines. The company usually produces all the necessary parts for its products. However, an outside supplier has recently offered to sell a specialized part – Part H – to the company for $31 per unit. To evaluate this offer, the company has gathered the following information regarding its own cost of producing the Part H internally: Per unit 15,000 units per year Direct materials 12 180,000 Direct Labour 12 180,000 Variable manufacturing overhead 3 45,000 Fixed manufacturing overhead (one-third belongs to supervisory salaries; two-thirds belongs to the depreciation of special equipment) 6 90,000 Required (show your calculation): i) Assuming that the company has no alternative use for the facilities now being used to produce Part H, should the outside supplier’s offer be accepted? Explain your answer. Type in answers to Question 4. a. i (expand the space as needed) ii) Suppose that if Part H were purchased, the company could use the freed capacity to launch a new product. The segment margin of the new product would be $75,000 per year. Should the company accept the offer to buy Part H for $31 per unit? Explain your answer.
DIFFERENTIAL ANALYSIS AND DECISION MAKING Heavy Metals produces various electronics items for use in heavy machines. The company usually produces all the necessary parts for its products. However, an outside supplier has recently offered to sell a specialized part – Part H – to the company for $31 per unit. To evaluate this offer, the company has gathered the following information regarding its own cost of producing the Part H internally: Per unit 15,000 units per year Direct materials 12 180,000 Direct Labour 12 180,000 Variable manufacturing overhead 3 45,000 Fixed manufacturing overhead (one-third belongs to supervisory salaries; two-thirds belongs to the depreciation of special equipment) 6 90,000 Required (show your calculation): i) Assuming that the company has no alternative use for the facilities now being used to produce Part H, should the outside supplier’s offer be accepted? Explain your answer. Type in answers to Question 4. a. i (expand the space as needed) ii) Suppose that if Part H were purchased, the company could use the freed capacity to launch a new product. The segment margin of the new product would be $75,000 per year. Should the company accept the offer to buy Part H for $31 per unit? Explain your answer.
Chapter10: Short-term Decision Making
Section: Chapter Questions
Problem 7EB: Oat Treats manufactures various types of cereal bars featuring oats. Simmons Cereal Company has...
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DIFFERENTIAL ANALYSIS AND DECISION MAKING
- Heavy Metals produces various electronics items for use in heavy machines. The company usually produces all the necessary parts for its products. However, an outside supplier has recently offered to sell a specialized part – Part H – to the company for $31 per unit. To evaluate this offer, the company has gathered the following information regarding its own cost of producing the Part H internally:
|
Per unit |
15,000 units per year |
Direct materials |
12 |
180,000 |
Direct Labour |
12 |
180,000 |
Variable manufacturing |
3 |
45,000 |
Fixed manufacturing overhead (one-third belongs to supervisory salaries; two-thirds belongs to the depreciation of special equipment) |
6 |
90,000 |
Required (show your calculation):
- i) Assuming that the company has no alternative use for the facilities now being used to produce Part H, should the outside supplier’s offer be accepted? Explain your answer.
Type in answers to Question 4. a. i (expand the space as needed)
|
- ii) Suppose that if Part H were purchased, the company could use the freed capacity to launch a new product. The segment margin of the new product would be $75,000 per year. Should the company accept the offer to buy Part H for $31 per unit? Explain your answer.
Type in answers to Question 4. a. ii. (expand the space as needed)
|
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