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Each of the following situations is independent. A. Vallis Inc. manufactures machine parts for military an offer from another military subcontractor to provide 2.000 units of product ZR17 for $120,000. If Vallis does not purchase these parts ft continue to produce them in-house at the following drones. The company is considering om the subcontractor, it must bosts: Cost per Unit $28 $18 $16 $4 Direct materials Direct labour Variable overhead Allocated fixed overhead Required: a. Analyze the offer quantitatively to determine if Vallis should continue to manufacture the component or outsource it. b. Outline at least three qualitative considerations that Vallis should consider in this decision. Why are these factors that you have outlined important?

Each of the following situations is independent. A. Vallis Inc. manufactures machine parts for military an offer from another military subcontractor to provide 2.000 units of product ZR17 for $120,000. If Vallis does not purchase these parts ft continue to produce them in-house at the following drones. The company is considering om the subcontractor, it must bosts: Cost per Unit $28 $18 $16 $4 Direct materials Direct labour Variable overhead Allocated fixed overhead Required: a. Analyze the offer quantitatively to determine if Vallis should continue to manufacture the component or outsource it. b. Outline at least three qualitative considerations that Vallis should consider in this decision. Why are these factors that you have outlined important?

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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Question 3: Each of the following situations is independent. A. Vallis Inc. manufactures machine parts for military an offer from another military subcontractor to provide 2.000 units of product ZR17 for $120,000. If Vallis does not purchase these parts fi continue to produce them in-house at the following drones. The company is considering 'om the subcontractor, it must costs: Cosf per Unit $28 $18 $16 $4 Direct materials Direct labour Variable overhead Allocated fixed overhead Required: a. Analyze the offer quantitatively to determine if Vallis should continue to manufacture the component or outsource it. b. Outline at least three qualitative considerations that Vallis should consider in this decision. Why are these factors that you have outlined important?
Transcribed Image Text:Question 3: Each of the following situations is independent. A. Vallis Inc. manufactures machine parts for military an offer from another military subcontractor to provide 2.000 units of product ZR17 for $120,000. If Vallis does not purchase these parts fi continue to produce them in-house at the following drones. The company is considering 'om the subcontractor, it must costs: Cosf per Unit $28 $18 $16 $4 Direct materials Direct labour Variable overhead Allocated fixed overhead Required: a. Analyze the offer quantitatively to determine if Vallis should continue to manufacture the component or outsource it. b. Outline at least three qualitative considerations that Vallis should consider in this decision. Why are these factors that you have outlined important?
B. Wallace Company manufactures a variety of valves and fittings used in industrial plumbing that are sold to customers in other Canadian provinces. Currently, the company is operating at about 70 percent capacity, and is quite profitable. Tudor Industries, located in Wales, has approached management to purchase 120,000 units of a pressure valve, and is prepared to pay $21 per valve. Wallace's product cost for each pressure valve includes the following: Direct materials $ 6 Direct labour 8 Variable manufacturing overhead Fixed manufacturing overhead Total manufacturing cost 3 $23 There will be no sales commission costs on this order, as it has come directly from management, and Tudor will cover all shipping costs. Currently, the pressure valves are sold for $30 to its other customers. Production management believes that it can handle the Tudor order without disrupting its current scheduled production. The order, however, will require an additional fixed overhead cost of $48,000 for supervision and clerical costs. Required: Prepare an analysis to support whether Wallace should accept this special order or not. Show all calculations. Identify at least two strategic qualitative factors that Wallace should consider in its decision as to whether this order should be accepted.
Transcribed Image Text:B. Wallace Company manufactures a variety of valves and fittings used in industrial plumbing that are sold to customers in other Canadian provinces. Currently, the company is operating at about 70 percent capacity, and is quite profitable. Tudor Industries, located in Wales, has approached management to purchase 120,000 units of a pressure valve, and is prepared to pay $21 per valve. Wallace's product cost for each pressure valve includes the following: Direct materials $ 6 Direct labour 8 Variable manufacturing overhead Fixed manufacturing overhead Total manufacturing cost 3 $23 There will be no sales commission costs on this order, as it has come directly from management, and Tudor will cover all shipping costs. Currently, the pressure valves are sold for $30 to its other customers. Production management believes that it can handle the Tudor order without disrupting its current scheduled production. The order, however, will require an additional fixed overhead cost of $48,000 for supervision and clerical costs. Required: Prepare an analysis to support whether Wallace should accept this special order or not. Show all calculations. Identify at least two strategic qualitative factors that Wallace should consider in its decision as to whether this order should be accepted.
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