Each year, Mearic Inc. manufactures 10,000 components that are used in the company's manufacturing process. For 2023, the following manufacturing costs were budgeted: Direct materials ($472,500) Direct labour ($756,000) Variable overhead ($283,500) Fixed overhead ($378,000) Total costs = $1,890,000 Recently, a potential supplier approached management at Mearic Inc. with an offer to sell these components to Mearic Inc. for $150 per unit. If management at Mearic Inc. agrees to buy the components from the supplier, the company would still be required to pay fixed overhead; however, all other manufacturing costs would be avoided. Required: (A) Based on financial considerations alone, should Mearic Inc. accept the offer? (B) Before accepting or rejecting a potential suppliers offer, what qualitative factors should a company such as Mearic Inc. consider?
Each year, Mearic Inc. manufactures 10,000 components that are used in the company's manufacturing process. For 2023, the following
Direct materials ($472,500)
Direct labour ($756,000)
Variable overhead ($283,500)
Fixed overhead ($378,000)
Total costs = $1,890,000
Recently, a potential supplier approached management at Mearic Inc. with an offer to sell these components to Mearic Inc. for $150 per unit. If management at Mearic Inc. agrees to buy the components from the supplier, the company would still be required to pay fixed overhead; however, all other manufacturing costs would be avoided.
Required:
(A) Based on financial considerations alone, should Mearic Inc. accept the offer?
(B) Before accepting or rejecting a potential suppliers offer, what qualitative factors should a company such as Mearic Inc. consider?
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