John Corporation manufactures laser printers. John currently manufactures the 32,000 imaging drums that it uses in its printers. The annual costs to manufacture these 32,000 drums follows: Cost per drum Total Cost P 23 P 736,000 Variable Manufacturing Costs Fixed manufacturing Costs 65 2,080,000 Total Costs P80 P 2,816,000 Hardware Solutions, Inc. has offered to provide John with all of its imaging drum needs for P73 per drum. If Jay accepts this offer, 70% of the fixed manufacturing cost above could be totally eliminated. Also, John will be able to use the freed up space to generate P240,000 of income each year in the production of alternative products. Based on the information presented, the price that John would be indifferent on whether to make or buy the drums from Hardware would be P per unit

John Corporation manufactures laser printers. John currently manufactures the 32,000 imaging drums that it uses in its printers. The annual costs to manufacture these 32,000 drums follows: Cost per drum Total Cost P 23 P 736,000 Variable Manufacturing Costs Fixed manufacturing Costs 65 2,080,000 Total Costs P80 P 2,816,000 Hardware Solutions, Inc. has offered to provide John with all of its imaging drum needs for P73 per drum. If Jay accepts this offer, 70% of the fixed manufacturing cost above could be totally eliminated. Also, John will be able to use the freed up space to generate P240,000 of income each year in the production of alternative products. Based on the information presented, the price that John would be indifferent on whether to make or buy the drums from Hardware would be P per unit

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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The Pixels Corporation produces a component used in the manufacture of one of its best-selling products. The costs associated with the production of 10,000 units of this component are presented in the table above. The PCAOB Corp. offered to sell Pixels 10,000 units of the same part at a price of $36 per unit. Assume that Pixels has no alternative use for the factory facilities that would be released. Based on all of the information above, should Pixels manufacture their own part or outsource to PCAOB? Note that if you agree to outsource, you would save $60,000 in indirect fixed costs. Direct Materials $90,000 Direct Manufacturing Labor $130,000 Variable Manufacturing Overhead $60,000 Fixed Manufacturing Overhead $140,000 Total Costs $420,000 a. Buy the part from PCAOB because you save $6 per unit b. Manufacture the part because it saves $6 per unit c. Make the part because you save $2 per unit d. Buy the part from PCAOB because you save $60,000
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