32. Suppose that the unused capacity could be leased to another company for P4,000 pe month. Should the company make the motors in-house? Yes, because lease revenues are less than the cost savings resulting from in-house manufacture of motors. b. No, because lease revenues are more than cost savings from in-house manufacture of motors. c. Yes, because total incremental costs are less than the supplier's price. d. No, because total incremental costs are more than the supplier's price
32. Suppose that the unused capacity could be leased to another company for P4,000 pe month. Should the company make the motors in-house? Yes, because lease revenues are less than the cost savings resulting from in-house manufacture of motors. b. No, because lease revenues are more than cost savings from in-house manufacture of motors. c. Yes, because total incremental costs are less than the supplier's price. d. No, because total incremental costs are more than the supplier's price
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
What is the answer to question number 32? Show solution if you can.
Transcribed Image Text:Use the following data for the next three questions:
Vacuum Company manufactures vacuum cleaners. Currently, it is operating at 60%
capacity and producing 3,000 units monthly. To utilize the unused capacity, the company is
considering manufacturing motor components at its own plant instead of purchasing them
thee from an outside supplier at P33 per unit. Fixed overhead will increase by P3,000 per month
to support the in-house production of motors. The company estimates the monthly
manufacturing costs for 3,000 motors as follows:
Direct materials
Direct labor
Variable overhead
Fixed overhead
Total
P36,000
27,000
18,000
22,500
P103,500
30. Should the company make the motors in-house?
a. Yes, because the total variable cost is less than the supplier's price
b. No, because the total variable cost is more than the supplier's price.
c. Yes, because the total incremental cost is less than the supplier's price.
d. No, because the total incremental cost is greater than the supplier's price.
31. What is the relevant unit cost for this decision?
a. P33.00
b. P5.00
c. P28.00
d. P35.50
32. Suppose that the unused capacity could be leased to another company for P4,000 per
month. Should the company make the motors in-house?
a. Yes, because lease revenues are less than the cost savings resulting from in-house
manufacture of motors.
b. No, because lease revenues are more than cost savings from in-house manufacture
of motors.
c. Yes, because total incremental costs are less than the supplier's price.
d. No, because total incremental costs are more than the supplier's price.
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