2. Elm Paper Corporation manufactures 20,000 rolls of paper each period. The paper is used as an input for producing several other products that Elm manufactures. The full manufacturing costs for a batch of 100 rolls of paper are as follows: Direct materials $ 270 Direct labor 200 Variable manufacturing overhead 200 Average fixed manufacturing overhead 375 Total $1,045 The fixed manufacturing overhead is comprised of depreciation expenses related to prior investments in facilities and equipment that are used in the manufacturing of the paper. These assets have no other use than for the manufacturing of the paper. An outside supplier has offered to sell Elm the 20,000 rolls of paper necessary to meet production needs this period for a lump-sum of $145,000. What should Elm do if it wants to maximize its profit for the period? ?

Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter2: Basic Cost Management Concepts
Section: Chapter Questions
Problem 21E: Ellerson Company provided the following information for the last calendar year: During the year,...
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2. Elm Paper Corporation manufactures 20,000 rolls of paper each period. The paper is used as an input for producing several other products that Elm manufactures. The
full manufacturing costs for a batch of 100 rolls of paper are as follows:
Direct materials $ 270
Direct labor 200
Variable manufacturing overhead 200
Average fixed manufacturing overhead 375
Total $1,045
The fixed manufacturing overhead is comprised of depreciation expenses related to prior investments in facilities and equipment that are used in the manufacturing of the
paper. These assets have no other use than for the manufacturing of the paper. An outside supplier has offered to sell Elm the 20,000 rolls of paper necessary to meet
production needs this period for a lump-sum of $145,000.
What should Elm do if it wants to maximize its profit for the period?
?
Transcribed Image Text:2. Elm Paper Corporation manufactures 20,000 rolls of paper each period. The paper is used as an input for producing several other products that Elm manufactures. The full manufacturing costs for a batch of 100 rolls of paper are as follows: Direct materials $ 270 Direct labor 200 Variable manufacturing overhead 200 Average fixed manufacturing overhead 375 Total $1,045 The fixed manufacturing overhead is comprised of depreciation expenses related to prior investments in facilities and equipment that are used in the manufacturing of the paper. These assets have no other use than for the manufacturing of the paper. An outside supplier has offered to sell Elm the 20,000 rolls of paper necessary to meet production needs this period for a lump-sum of $145,000. What should Elm do if it wants to maximize its profit for the period? ?
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