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

FINANCIAL ACCOUNTING
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Chapter1: Financial Statements And Business Decisions
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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.
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