Make or Buy Canada Inc. manufactures a variety of heating and air-conditioning units. The company is currently manufacturing all of its component parts. An outside supplier has offered to sell thermostat to Canada for P200 per unit. To evaluate this offer, Canada Inc., has gathered the following information relating to its own cost of producing the thermostat internally: Per Unit 15,000 units per year Direct materials P60 900,000 Direct labor 80 1,200,000 Variable manufacturing overhead 10 150,000 Fixed manufacturing overhead, traceable 50* 750,000 Fixed manufacturing overhead, common, but allocated 100 1,500,000 Total Cost 300 4,500,000 *40% supervisory salaries; 60% depreciation of special equipment (no resale value). Required: Assuming that the company has no alternative use for the facilities now being used to produce the thermostat, should the outside supplier’s offer be accepted? (Yes or no provide explanation with 3 sentences only) Show all computations. Suppose that if the thermostat was purchased, Canad
Make or Buy Canada Inc. manufactures a variety of heating and air-conditioning units. The company is currently manufacturing all of its component parts. An outside supplier has offered to sell thermostat to Canada for P200 per unit. To evaluate this offer, Canada Inc., has gathered the following information relating to its own cost of producing the thermostat internally: Per Unit 15,000 units per year Direct materials P60 900,000 Direct labor 80 1,200,000 Variable manufacturing overhead 10 150,000 Fixed manufacturing overhead, traceable 50* 750,000 Fixed manufacturing overhead, common, but allocated 100 1,500,000 Total Cost 300 4,500,000 *40% supervisory salaries; 60% depreciation of special equipment (no resale value). Required: Assuming that the company has no alternative use for the facilities now being used to produce the thermostat, should the outside supplier’s offer be accepted? (Yes or no provide explanation with 3 sentences only) Show all computations. Suppose that if the thermostat was purchased, Canad
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
100%
Make or Buy
Canada Inc. manufactures a variety of heating and air-conditioning units. The company is currently manufacturing all of its component parts. An outside supplier has offered to sell thermostat to Canada for P200 per unit. To evaluate this offer, Canada Inc., has gathered the following information relating to its own cost of producing the thermostat internally:
Per Unit
15,000 units per year
Direct materials
P60
900,000
Direct labor
80
1,200,000
Variable manufacturing overhead
10
150,000
Fixed manufacturing overhead, traceable
50*
750,000
Fixed manufacturing overhead, common, but allocated
100
1,500,000
Total Cost
300
4,500,000
*40% supervisory salaries; 60% depreciation of special equipment (no resale value).
Required:
Assuming that the company has no alternative use for the facilities now being used to produce the thermostat, should the outside supplier’s offer be accepted? (Yes or no provide explanation with 3 sentences only) Show all computations.
Suppose that if the thermostat was purchased, Canada, Inc. could use the freed capacity to launch a new product. The segment margin of the new product would be P650,000 per year. Should Canada, Inc. accept the offer to buy the thermostat from the outside supplier for P200 each? (Yes or no provide explanation with 3 sentences only) Show all computations.
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 4 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