Indigo Inc. has been manufacturing its own shades for its table lamps. The company is currently operating at 100% of capacity, and variable manufacturing overhead is charged to production at the rate of 50% of direct labour costs. The direct materials and direct labour costs per unit to make the lampshades are $4.60 and $5.90, respectively. Normal production is 48,800 table lamps per year. A supplier offers to make the lampshades at a price of $13.70 per unit. If Indigo Inc. accepts the supplier's offer, all variable manufacturing costs will be eliminated, but the $48,400 of fixed manufacturing overhead currently being charged to the lampshades will have to be absorbed by other products.
Indigo Inc. has been manufacturing its own shades for its table lamps. The company is currently operating at 100% of capacity, and variable manufacturing overhead is charged to production at the rate of 50% of direct labour costs. The direct materials and direct labour costs per unit to make the lampshades are $4.60 and $5.90, respectively. Normal production is 48,800 table lamps per year. A supplier offers to make the lampshades at a price of $13.70 per unit. If Indigo Inc. accepts the supplier's offer, all variable manufacturing costs will be eliminated, but the $48,400 of fixed manufacturing overhead currently being charged to the lampshades will have to be absorbed by other products.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Would your answer be different in part (b) if the productive capacity released by not making the lampshades could be used to
produce income of $28,100?
income would
by $
Transcribed Image Text:Indigo Inc. has been manufacturing its own shades for its table lamps. The company is currently operating at 100% of capacity, and
variable manufacturing overhead is charged to production at the rate of 50% of direct labour costs. The direct materials and direct
labour costs per unit to make the lampshades are $4.60 and $5.90, respectively. Normal production is 48,800 table lamps per year.
A supplier offers to make the lampshades at a price of $13.70 per unit. If Indigo Inc. accepts the supplier's offer, all variable
manufacturing costs will be eliminated, but the $48,400 of fixed manufacturing overhead currently being charged to the lampshades
will have to be absorbed by other products.
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