Elephan Co. produces 3 components with the following information available CProduction (units)20,00040,00080,000Direct Material Cost Per unit0.801.000.40Direct Labor Cost Per unit1.601.800.80Direct Overhead Cost Per unit0.400.600.20Fixed cost per unit0.801.000.40Sales Price per unit4.005.002.00Imported Price2.754.202.00Required:(1) Should Elephant Ears Co. make or buy each of the components it sells?(i) If the components are all made by Elephant Ears Co. how much profit will bemade?(ii) If your recommendation in part (i) is taken up how much profit will be made?(iv) What other factors should be considered before this decision is made?

Comment: The Question is Multipart, so SME will answer only three subparts as per Bartleby…

(1) Should Elephant Ears Co. make or buy each of the components it sells? (ii) If the components are all made by Elephant Ears Co. how much profit will be made? (ii) If your recommendation in part (1) is taken up how much profit will be made?

(1) Should Elephant Ears Co. make or buy each of the components it sells? (ii) If the components are all made by Elephant Ears Co. how much profit will be made? (ii) If your recommendation in part (1) is taken up how much profit will be made?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Concept explainers

Classification Of Risk

Risk means when there could be a possibility that the returns expected from a particular project or investment may or may not match the investor's expectations. In other words, the uncertainty of an income arising from a source that would either be lower than expected or result in losses in risk exposure of the project. The higher the risk involved, the higher is the return expected by the investor as the investor is exposed to a high level of risk. There are various methods by which different types of risk can be assessed and avoided or mitigated.

Question

Elephan Co. produces 3 components with the following information available

C
Production (units)
20,000
40,000
80,000
Direct Material Cost Per unit
0.80
1.00
0.40
Direct Labor Cost Per unit
1.60
1.80
0.80
Direct Overhead Cost Per unit
0.40
0.60
0.20
Fixed cost per unit
0.80
1.00
0.40
Sales Price per unit
4.00
5.00
2.00
Imported Price
2.75
4.20
2.00
Required:
(1) Should Elephant Ears Co. make or buy each of the components it sells?
(i) If the components are all made by Elephant Ears Co. how much profit will be
made?
(ii) If your recommendation in part (i) is taken up how much profit will be made?
(iv) What other factors should be considered before this decision is made?

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