A VACUUM MANAUFACTUER HAS PREPARED THE FOLLOWING HAS THE FOLLOWING COST DATA FOR MANUFACTURING ONE OF ITS ENGINE COMPONENTS BASED ON THE ANNUAL PRODUCTION OF 50,000 UNITS DIRECT MATERIALS $75,000 DIRECT LABOR $100,000 TOTAL $175,000 IN ADDITION, VARIABLE FACTORY OVERHEAD IS APPLIED AT $7.50 PER UNIT. FIXED FACTORY OVERHEAD IS APPLIED AT 150% OF DIRECT LABOUR COST PER UNIT. THE VACUUM SELLS FOR $150 EACH. A THIRD PARTY HAS OFFERED TO MAKE THE ENGINES FOR $60 PER UNIT. 75% OF THE FIXED FACTORY OVERHEAD, WHICH REPRESENTS EXECUTIVE SALARIES, RENT, DEPRECIATION, AND TAXES, CONTINUES REGARDLESS OF DECISION. sHOULD THE COMPANY MAKE OR BUY THE ENGINES?
A VACUUM MANAUFACTUER HAS PREPARED THE FOLLOWING HAS THE FOLLOWING COST DATA FOR MANUFACTURING ONE OF ITS ENGINE COMPONENTS BASED ON THE ANNUAL PRODUCTION OF 50,000 UNITS DIRECT MATERIALS $75,000 DIRECT LABOR $100,000 TOTAL $175,000 IN ADDITION, VARIABLE FACTORY OVERHEAD IS APPLIED AT $7.50 PER UNIT. FIXED FACTORY OVERHEAD IS APPLIED AT 150% OF DIRECT LABOUR COST PER UNIT. THE VACUUM SELLS FOR $150 EACH. A THIRD PARTY HAS OFFERED TO MAKE THE ENGINES FOR $60 PER UNIT. 75% OF THE FIXED FACTORY OVERHEAD, WHICH REPRESENTS EXECUTIVE SALARIES, RENT, DEPRECIATION, AND TAXES, CONTINUES REGARDLESS OF DECISION. sHOULD THE COMPANY MAKE OR BUY THE ENGINES?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
A VACUUM MANAUFACTUER HAS PREPARED THE FOLLOWING HAS THE FOLLOWING COST DATA FOR MANUFACTURING ONE OF ITS ENGINE COMPONENTS BASED ON THE ANNUAL PRODUCTION OF 50,000 UNITS
DIRECT MATERIALS $75,000
DIRECT LABOR $100,000
TOTAL $175,000
IN ADDITION, VARIABLE FACTORY
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