Old Camp Company manufactures awnings for its own line of tents. The company currently is operating at capacity and received an offer from one of its suppliers to make the 11,000 awnings it needs for $20 each. Old Camp’s costs for making the awning are $7 in direct materials and $6 in direct labor. Variable manufacturing overhead is 75 percent of direct labor. If Old Camp accepts the offer, $37,000 of fixed manufacturing overhead currently being charged to the awnings will have to be absorbed by other product lines. Required: Complete the incremental analysis for the decision to make or buy the awnings in the table provided below. Should Old Camp continue to manufacture the awnings, or should it purchase the awnings from the supplier? Assuming the capacity released by purchasing the awnings allowed Old Camp to record a profit of $35,000, should Old Camp continue to manufacture or purchase the awnings?
Old Camp Company manufactures awnings for its own line of tents. The company currently is operating at capacity and received an offer from one of its suppliers to make the 11,000 awnings it needs for $20 each. Old Camp’s costs for making the awning are $7 in direct materials and $6 in direct labor. Variable manufacturing overhead is 75 percent of direct labor. If Old Camp accepts the offer, $37,000 of fixed manufacturing overhead currently being charged to the awnings will have to be absorbed by other product lines. Required: Complete the incremental analysis for the decision to make or buy the awnings in the table provided below. Should Old Camp continue to manufacture the awnings, or should it purchase the awnings from the supplier? Assuming the capacity released by purchasing the awnings allowed Old Camp to record a profit of $35,000, should Old Camp continue to manufacture or purchase the awnings?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Old Camp Company manufactures awnings for its own line of tents. The company currently is operating at capacity and received an offer from one of its suppliers to make the 11,000 awnings it needs for $20 each. Old Camp’s costs for making the awning are $7 in direct materials and $6 in direct labor. Variable manufacturing
Required:
- Complete the incremental analysis for the decision to make or buy the awnings in the table provided below.
- Should Old Camp continue to manufacture the awnings, or should it purchase the awnings from the supplier?
- Assuming the capacity released by purchasing the awnings allowed Old Camp to record a profit of $35,000, should Old Camp continue to manufacture or purchase the awnings?
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