Current-Control Inc. manufactures a variety of electrical switches. The company is currently manufacturing all of its own component parts. An outside supplier has offered to sell a switch to Current-Control for $32 per unit. To evaluate this offer, Current-Control has gathered the following information relating to its own cost of producing the switch internally: Per 12,000 Units Unit per Year $144,000 120,000 36,000 96,000 192,000 Direct materials $12 Direct labour 10 Variable manufacturing overhead Fixed manufacturing overhead, traceable Fixed manufacturing overhead, common, but allocated 3 8* 16 Total cost $49 $588,000 *25% supervisory salaries; 75% depreciation of special equipment (no resale value). Required: 1-a. Assuming that the company has no alternative use for the facilities now being used to produce the switch, compute the total cost of making and buying the parts. Make Buy Total cost (12,000 units)
Current-Control Inc. manufactures a variety of electrical switches. The company is currently manufacturing all of its own component parts. An outside supplier has offered to sell a switch to Current-Control for $32 per unit. To evaluate this offer, Current-Control has gathered the following information relating to its own cost of producing the switch internally: Per 12,000 Units Unit per Year $144,000 120,000 36,000 96,000 192,000 Direct materials $12 Direct labour 10 Variable manufacturing overhead Fixed manufacturing overhead, traceable Fixed manufacturing overhead, common, but allocated 3 8* 16 Total cost $49 $588,000 *25% supervisory salaries; 75% depreciation of special equipment (no resale value). Required: 1-a. Assuming that the company has no alternative use for the facilities now being used to produce the switch, compute the total cost of making and buying the parts. Make Buy Total cost (12,000 units)
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Transcribed Image Text:Current-Control Inc. manufactures a variety of electrical switches. The company is currently manufacturing all of its own component
parts. An outside supplier has offered to sell a switch to Current-Control for $32 per unit. To evaluate this offer, Current-Control has
gathered the following information relating to its own cost of producing the switch internally:
Per
12,000 Units
Unit
per Year
$144,000
120,000
36,000
96,000
192,000
Direct materials
$12
Direct labour
10
Variable manufacturing overhead
Fixed manufacturing overhead, traceable
3
8*
Fixed manufacturing overhead, common, but allocated
16
Total cost
$49
$588,000
*25% supervisory salaries; 75% depreciation of special equipment (no resale value).
Required:
1-a. Assuming that the company has no alternative use for the facilities now being used to produce the switch, compute the total cost
of making and buying the parts.
Make
Buy
Total cost (12,000 units)
Transcribed Image Text:1-b. Should the outside supplier's offer be accepted?
О Аccеpt
O Reject
2-a. Suppose that if the switches were purchased, Current-Control could use the freed capacity to launch a new product. The segment
margin of the new product would be $78,000 per year. Compute the total cost of making and buying the parts.
Make
Buy
Total cost (12,000 units)
2-b. Should Current-Control accept the offer to buy the switches from the outside supplier for $32 each?
O Аccеpt
O Reject
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