An airline company flies domestic routes between Manila and the various cities in the Philippines. The airline serves meals to all passengers as part of their package service. The cost of one (1) complete meal is provided below. Variable costs: Direct materials P6.00 Direct labor 4.00 Variable overhead 4.00 Fixed costs: Supervisory salaries 4.00 Depreciation of kitchen equipment 7.00 Total cost per meal P25.00 A catering service has offered to supply the meals for P20.00 each. Assume further that P1.00 of the fixed costs could be avoided. The fixed cost per unit was computed using the normal operations of 2,000 meals per month. 1. Dtermine the relevant/differential costs. 2. Should the company make or buy meals?
An airline company flies domestic routes between Manila and the various cities in the Philippines. The airline serves meals to all passengers as part of their package service. The cost of one (1) complete meal is provided below.
|
Variable costs: |
|
|
Direct materials |
P6.00 |
|
Direct labor |
4.00 |
|
Variable overhead |
4.00 |
|
Fixed costs: |
|
|
Supervisory salaries |
4.00 |
|
|
7.00 |
|
Total cost per meal |
P25.00 |
A catering service has offered to supply the meals for P20.00 each. Assume further that P1.00 of the fixed costs could be avoided. The fixed cost per unit was computed using the normal operations of 2,000 meals per month.
1. Dtermine the relevant/differential costs.
2. Should the company make or buy meals?
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