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Omega Corporation currently manufactures a component for its main product. The costs per unit are as follows: Sh. Direct materials 1.00 Direct labor 10.00 Variable overhead 5.00 Fixed overhead 8.00 Total 24.00 Zed Company has contacted Omega Company with an offer to sell them 5,000 of the components for sh. 22 each. Omega Company will eliminate sh. 25,000 of the fixed overhead if it accepts the order. should Omega company make or buy the component:

Omega Corporation currently manufactures a component for its main product. The costs per unit are as follows: Sh. Direct materials 1.00 Direct labor 10.00 Variable overhead 5.00 Fixed overhead 8.00 Total 24.00 Zed Company has contacted Omega Company with an offer to sell them 5,000 of the components for sh. 22 each. Omega Company will eliminate sh. 25,000 of the fixed overhead if it accepts the order. should Omega company make or buy the component:

FINANCIAL ACCOUNTING
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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Omega Corporation currently manufactures a component for its main product. The costs per unit are as follows:

                                                                                                      Sh.

Direct materials                                                                       1.00

Direct labor                                                                             10.00

Variable overhead                                                                    5.00

Fixed overhead                                                                         8.00

Total                                                                                        24.00

 Zed Company has contacted Omega Company with an offer to sell them 5,000 of the components for sh. 22 each. Omega Company will eliminate sh. 25,000 of the fixed overhead if it accepts the order.

should Omega company make or buy the component:

.  


 

Select one:
A. Make and save sh.5,000
B. Buy and save sh.10,000
C. Make and save sh. 30,000
D. Make and save sh. 20,000
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