6. Plumbing Company makes 4,000 units per year of a part called an axial tapfor use in one of its products. Data concerning the unit production costs ofthe axial tap follow:Direct materialsDirect labor£3510820Variable manufacturing overhead ...Fixed manufacturing overheadTotal manufacturing cost per unit... £73An outside supplier has offered to sell Plumbing Company all of the axial tapsit requires. If Plumbing Company decided to discontinue making the axial taps,40% of the above fixed manufacturing overhead costs could be avoided.Assume that direct labor is a variable cost.Required:a. Assume Plumbing Company has no alternative use for the facilities presentlydevoted to production of the axial taps. If the outside supplier offers to sell theaxial taps for £65 each, should Plumbing Company accept the offer? Fullysupport your answer with appropriate calculations.b. Assume that Plumbing Company could use the facilities presently devoted toproduction of the axial taps to expand production of another product thatwould yield an additional contribution margin of £80,000 annually. What isthe maximum price Plumbing Company should be willing to pay the outsidesupplier for axial taps?

A "make or buy" decision is a strategic choice that businesses often face when considering whether…

a. Assume Plumbing Company has no alternative use for the facilities presently devoted to production of the axial taps. If the outside supplier offers to sell the axial taps for £65 each, should Plumbing Company accept the offer? Fully support your answer with appropriate calculations. b. Assume that Plumbing Company could use the facilities presently devoted to production of the axial taps to expand production of another product that would yield an additional contribution margin of £80,000 annually. What is the maximum price Plumbing Company should be willing to pay the outside supplier for axial taps?

a. Assume Plumbing Company has no alternative use for the facilities presently devoted to production of the axial taps. If the outside supplier offers to sell the axial taps for £65 each, should Plumbing Company accept the offer? Fully support your answer with appropriate calculations. b. Assume that Plumbing Company could use the facilities presently devoted to production of the axial taps to expand production of another product that would yield an additional contribution margin of £80,000 annually. What is the maximum price Plumbing Company should be willing to pay the outside supplier for axial taps?

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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