Lingkod Company, a manufacturer of furniture sets, is considering to purchase the seat cushions needed for its chairs. The expected purchase price of these seat cushions is P50 per unit. Lingkod has been making its own seat cushions since it started operating. If it would continue to produce these cushions, the company would expect to incur the following costs: Raw materials P 13 Direct labor 15 Variable overhead 5 Fixed overhead (based on the average production requirement of 10,000 units) 20 Total production cost per unit P53 Required: 1. Should Lingkod manufacture the seat cushions? Why or why not? 2. Assume that 40% of the fixed factory overhead could be eliminated if the company would discontinue the manufacture of seat cushions. Should Lingkod manufacture the seat cushions? Why or why not? 3. a. Assume that 40% of the fixed factory overhead could be eliminated if the company would discontinue the manufacture of seat cushions.
Lingkod Company, a manufacturer of furniture sets, is considering to purchase the seat cushions needed for its chairs. The expected purchase price of these seat cushions is P50 per unit. Lingkod has been making its own seat cushions since it started operating. If it would continue to produce these cushions, the company would expect to incur the following costs: Raw materials P 13 Direct labor 15 Variable overhead 5 Fixed overhead (based on the average production requirement of 10,000 units) 20 Total production cost per unit P53 Required: 1. Should Lingkod manufacture the seat cushions? Why or why not? 2. Assume that 40% of the fixed factory overhead could be eliminated if the company would discontinue the manufacture of seat cushions. Should Lingkod manufacture the seat cushions? Why or why not? 3. a. Assume that 40% of the fixed factory overhead could be eliminated if the company would discontinue the manufacture of seat cushions.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
MAKE OR BUY
Transcribed Image Text:Lingkod Company, a manufacturer of furniture sets, is considering to purchase the seat cushions needed
for its chairs. The expected purchase price of these seat cushions is P50 per unit.
Lingkod has been making its own seat cushions since it started operating. If it would continue to produce
these cushions, the company would expect to incur the following costs:
Raw materials
P 13
Direct labor
15
Variable overhead
Fixed overhead (based on the average production requirement of 10,000 units) 20
Total production cost per unit P53
Required:
1. Should Lingkod manufacture the seat cushions? Why or why not?
2. Assume that 40% of the fixed factory overhead could be eliminated if the company would
discontinue the manufacture of seat cushions. Should Lingkod manufacture the seat cushions?
Why or why not?
3.
a. Assume that 40% of the fixed factory overhead could be eliminated if the company would
discontinue the manufacture of seat cushions.
b. Assume further that MATERIALS and LABOR COSTS are expected to INCREASE by 20%
next period.
Moreover, the facilities being used in the manufacture of seat cushions can be utilized to
manufacture another part of the main product in case such facilities become vacant when the
company decides to stop producing the seat cushions. This alternative use of resources would
result into cost savings of P100,000 for Lingkod Company.
d. Assume further that the company's requirement for seat cushions is expected to increase by
4,000 units next period.
C.
Activ
Go to
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 3 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education