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Comet, Inc. has been experiencing the following costs when it produces 12,000 units of a subassembly: Direct materials.. .$108,000 Direct labor.... 72,000 100,000 Fixed overhead... A supplier offers to sell Comet an identical product for $18 per unit. Determine whether Comet should continue to make the product or should buy the product under each of the following conditions: (1) The fixed overhead represents the cost of insurance, taxes and depreciation on the manufacturing plant allocated to this product on the basis of the number of square feet occupied by the manufacturing operation. Comet has no alternative plans for use of this space. If Comet makes the product, it would be: (circle one) (a) $114,000 better off (b) $36,000 better off (c) $64,000 worse off (d) $60,000 better off (e) $100,000 worse off (2) The same information as part (1) with the following modification: $40,000 of the fixed costs represent the salary of a production manager who would be let go if Comet discontinues manufacturing the product. If Comet makes the product, it would be: (circle one) (a) $76,000 better off (b) $80,000 better off (c) $4,000 worse off (d) $12,000 better off (e) $24,000 worse off (3) The same information as part (1) with the following modification: Comet can rent out the idle capacity in the plant if it discontinues manufacturing the product. The total rent would be $25,000 per year. If Comet makes the product, it would be: (circle one) (a) $29,000 better off (b) $83,000 better off (c) $61,000 worse off (d) $11,000 better off (e) $14,000 worse off

Comet, Inc. has been experiencing the following costs when it produces 12,000 units of a subassembly: Direct materials.. .$108,000 Direct labor.... 72,000 100,000 Fixed overhead... A supplier offers to sell Comet an identical product for $18 per unit. Determine whether Comet should continue to make the product or should buy the product under each of the following conditions: (1) The fixed overhead represents the cost of insurance, taxes and depreciation on the manufacturing plant allocated to this product on the basis of the number of square feet occupied by the manufacturing operation. Comet has no alternative plans for use of this space. If Comet makes the product, it would be: (circle one) (a) $114,000 better off (b) $36,000 better off (c) $64,000 worse off (d) $60,000 better off (e) $100,000 worse off (2) The same information as part (1) with the following modification: $40,000 of the fixed costs represent the salary of a production manager who would be let go if Comet discontinues manufacturing the product. If Comet makes the product, it would be: (circle one) (a) $76,000 better off (b) $80,000 better off (c) $4,000 worse off (d) $12,000 better off (e) $24,000 worse off (3) The same information as part (1) with the following modification: Comet can rent out the idle capacity in the plant if it discontinues manufacturing the product. The total rent would be $25,000 per year. If Comet makes the product, it would be: (circle one) (a) $29,000 better off (b) $83,000 better off (c) $61,000 worse off (d) $11,000 better off (e) $14,000 worse off

FINANCIAL ACCOUNTING
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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Comet, Inc. has been experiencing the following costs when it produces 12,000 units of a subassembly: Direct materials.. .$108,000 Direct labor.... 72,000 100,000 Fixed overhead... A supplier offers to sell Comet an identical product for $18 per unit. Determine whether Comet should continue to make the product or should buy the product under each of the following conditions: (1) The fixed overhead represents the cost of insurance, taxes and depreciation on the manufacturing plant allocated to this product on the basis of the number of square feet occupied by the manufacturing operation. Comet has no alternative plans for use of this space. If Comet makes the product, it would be: (circle one) (a) $114,000 better off (b) $36,000 better off (c) $64,000 worse off (d) $60,000 better off (e) $100,000 worse off (2) The same information as part (1) with the following modification: $40,000 of the fixed costs represent the salary of a production manager who would be let go if Comet discontinues manufacturing the product. If Comet makes the product, it would be: (circle one) (a) $76,000 better off (b) $80,000 better off (c) $4,000 worse off (d) $12,000 better off (e) $24,000 worse off (3) The same information as part (1) with the following modification: Comet can rent out the idle capacity in the plant if it discontinues manufacturing the product. The total rent would be $25,000 per year. If Comet makes the product, it would be: (circle one) (a) $29,000 better off (b) $83,000 better off (c) $61,000 worse off (d) $11,000 better off (e) $14,000 worse off
Transcribed Image Text:Comet, Inc. has been experiencing the following costs when it produces 12,000 units of a subassembly: Direct materials.. .$108,000 Direct labor.... 72,000 100,000 Fixed overhead... A supplier offers to sell Comet an identical product for $18 per unit. Determine whether Comet should continue to make the product or should buy the product under each of the following conditions: (1) The fixed overhead represents the cost of insurance, taxes and depreciation on the manufacturing plant allocated to this product on the basis of the number of square feet occupied by the manufacturing operation. Comet has no alternative plans for use of this space. If Comet makes the product, it would be: (circle one) (a) $114,000 better off (b) $36,000 better off (c) $64,000 worse off (d) $60,000 better off (e) $100,000 worse off (2) The same information as part (1) with the following modification: $40,000 of the fixed costs represent the salary of a production manager who would be let go if Comet discontinues manufacturing the product. If Comet makes the product, it would be: (circle one) (a) $76,000 better off (b) $80,000 better off (c) $4,000 worse off (d) $12,000 better off (e) $24,000 worse off (3) The same information as part (1) with the following modification: Comet can rent out the idle capacity in the plant if it discontinues manufacturing the product. The total rent would be $25,000 per year. If Comet makes the product, it would be: (circle one) (a) $29,000 better off (b) $83,000 better off (c) $61,000 worse off (d) $11,000 better off (e) $14,000 worse off
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