Please help and break it down to understand.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Please help and break it down to understand.
![SUP
Problem A
Oldman Inc. has been manufacturing its own lamp shades for its table lamps. The company is currently
operating at 100% capacity. The direct materials cost is $5 per unit, the direct labour cost is $6 per unit and
variable manufacturing costs are 40% of direct labour costs. Total fixed manufacturing costs are $500,000 per
year. Normal production is 50,000 lampshades per year.
A supplier offers to make the lampshades at a price of $20 per unit. If Oldman Inc. accepts the offer all
variable manufacturing costs would be 100% avoidable and $200,000 of the total fixed manufacturing costs
would be unavoidable.
a) Prepare an incremental analysis for the decision to make or buy the lampshades.
b) Should Oldman make or buy the lampshades? What is the $ advantage?
c) Assume that if Oldman decides to buy the lampshades part of the factory space could be used to
produce 10,000 other lighting products that would generate a contribution margin $15 per unit.
Should Oldman make or buy the lampshades? Show your calculations.
Problem B
Hi-Tech is the creator of Y-Go, a technology that weaves silver into the fabric to kill bacteria and odou
clothing while managing heat. Y-GO has become very popular in undergarments for sports activities.
II
<>](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F963efa39-4808-43ff-b46a-57ddc557fc1f%2Fb21b974a-27d1-4f2f-b633-0191e9ccd0b3%2Fbdajsm.jpeg&w=3840&q=75)
Transcribed Image Text:SUP
Problem A
Oldman Inc. has been manufacturing its own lamp shades for its table lamps. The company is currently
operating at 100% capacity. The direct materials cost is $5 per unit, the direct labour cost is $6 per unit and
variable manufacturing costs are 40% of direct labour costs. Total fixed manufacturing costs are $500,000 per
year. Normal production is 50,000 lampshades per year.
A supplier offers to make the lampshades at a price of $20 per unit. If Oldman Inc. accepts the offer all
variable manufacturing costs would be 100% avoidable and $200,000 of the total fixed manufacturing costs
would be unavoidable.
a) Prepare an incremental analysis for the decision to make or buy the lampshades.
b) Should Oldman make or buy the lampshades? What is the $ advantage?
c) Assume that if Oldman decides to buy the lampshades part of the factory space could be used to
produce 10,000 other lighting products that would generate a contribution margin $15 per unit.
Should Oldman make or buy the lampshades? Show your calculations.
Problem B
Hi-Tech is the creator of Y-Go, a technology that weaves silver into the fabric to kill bacteria and odou
clothing while managing heat. Y-GO has become very popular in undergarments for sports activities.
II
<>
Expert Solution
![](/static/compass_v2/shared-icons/check-mark.png)
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 3 steps with 3 images
![Blurred answer](/static/compass_v2/solution-images/blurred-answer.jpg)
Recommended textbooks for you
![FINANCIAL ACCOUNTING](https://compass-isbn-assets.s3.amazonaws.com/isbn_cover_images/9781259964947/9781259964947_smallCoverImage.jpg)
![Accounting](https://www.bartleby.com/isbn_cover_images/9781337272094/9781337272094_smallCoverImage.gif)
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
![Accounting Information Systems](https://www.bartleby.com/isbn_cover_images/9781337619202/9781337619202_smallCoverImage.gif)
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
![FINANCIAL ACCOUNTING](https://compass-isbn-assets.s3.amazonaws.com/isbn_cover_images/9781259964947/9781259964947_smallCoverImage.jpg)
![Accounting](https://www.bartleby.com/isbn_cover_images/9781337272094/9781337272094_smallCoverImage.gif)
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
![Accounting Information Systems](https://www.bartleby.com/isbn_cover_images/9781337619202/9781337619202_smallCoverImage.gif)
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
![Horngren's Cost Accounting: A Managerial Emphasis…](https://www.bartleby.com/isbn_cover_images/9780134475585/9780134475585_smallCoverImage.gif)
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
![Intermediate Accounting](https://www.bartleby.com/isbn_cover_images/9781259722660/9781259722660_smallCoverImage.gif)
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
![Financial and Managerial Accounting](https://www.bartleby.com/isbn_cover_images/9781259726705/9781259726705_smallCoverImage.gif)
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education