QUESTION 4: DIFFERENTIAL ANALYSIS AND DECISION MAKING Heavy Metals produces various electronics items for use in heavy machines. The company usually produces all the necessary parts for its products. However, an outside supplier has recently offered to sell a specialized part – Part H – to the company for $31 per unit. To evaluate this offer, the company has gathered the following information regarding its own cost of producing the Part H internally: Per unit 15,000 units per year Direct materials 12 180,000 Direct Labour 12 180,000 Variable manufacturing overhead 3 45,000 Fixed manufacturing overhead (one-third belongs to supervisory salaries; two-thirds belongs to the depreciation of special equipment) 6 90,000 Required (show your calculation): i) Assuming that the company has no alternative use for the facilities now being used to produce Part H, should the outside supplier’s offer be accepted? Explain your answer. Type in answers to Question 4. a. i (expand the space as needed) ii) Suppose that if Part H were purchased, the company could use the freed capacity to launch a new product. The segment margin of the new product would be $75,000 per year. Should the company accept the offer to buy Part H for $31 per unit? Explain your answer. Type in answers to Question 4. a. ii. (expand the space as needed) Fine Juice Limited manufactures and sells organic juice for special events. Its manufacturing plant has the capacity to produce 17,000 bottles each month; its current monthly production is 15,500 bottles. The company’s regular selling price is $120 per bottle. The following data are provided for the current level of production: Variable costs: ($) Direct materials 850,000 Direct labour 475,000 Selling and administrative 17,000 Fixed costs: Manufacturing 705,175 Selling and administrative 265,675 The company has just received a special one-time order for 950 bottles at $86 each. This order would not affect fixed costs. Required: i) Should the company accept this special order? Explain your answers. Type in answers to Question 4. b. i. (expand the space as needed) ii) Assume that no variable selling and administrative costs would be incurred for this particular order. All other data presented above would remain the same. Should the company accept this special order? Explain your answers. Type in answers to Question 4. b. ii. (expand the space as needed)
QUESTION 4: DIFFERENTIAL ANALYSIS AND DECISION MAKING Heavy Metals produces various electronics items for use in heavy machines. The company usually produces all the necessary parts for its products. However, an outside supplier has recently offered to sell a specialized part – Part H – to the company for $31 per unit. To evaluate this offer, the company has gathered the following information regarding its own cost of producing the Part H internally: Per unit 15,000 units per year Direct materials 12 180,000 Direct Labour 12 180,000 Variable manufacturing overhead 3 45,000 Fixed manufacturing overhead (one-third belongs to supervisory salaries; two-thirds belongs to the depreciation of special equipment) 6 90,000 Required (show your calculation): i) Assuming that the company has no alternative use for the facilities now being used to produce Part H, should the outside supplier’s offer be accepted? Explain your answer. Type in answers to Question 4. a. i (expand the space as needed) ii) Suppose that if Part H were purchased, the company could use the freed capacity to launch a new product. The segment margin of the new product would be $75,000 per year. Should the company accept the offer to buy Part H for $31 per unit? Explain your answer. Type in answers to Question 4. a. ii. (expand the space as needed) Fine Juice Limited manufactures and sells organic juice for special events. Its manufacturing plant has the capacity to produce 17,000 bottles each month; its current monthly production is 15,500 bottles. The company’s regular selling price is $120 per bottle. The following data are provided for the current level of production: Variable costs: ($) Direct materials 850,000 Direct labour 475,000 Selling and administrative 17,000 Fixed costs: Manufacturing 705,175 Selling and administrative 265,675 The company has just received a special one-time order for 950 bottles at $86 each. This order would not affect fixed costs. Required: i) Should the company accept this special order? Explain your answers. Type in answers to Question 4. b. i. (expand the space as needed) ii) Assume that no variable selling and administrative costs would be incurred for this particular order. All other data presented above would remain the same. Should the company accept this special order? Explain your answers. Type in answers to Question 4. b. ii. (expand the space as needed)
QUESTION 4: DIFFERENTIAL ANALYSIS AND DECISION MAKING Heavy Metals produces various electronics items for use in heavy machines. The company usually produces all the necessary parts for its products. However, an outside supplier has recently offered to sell a specialized part – Part H – to the company for $31 per unit. To evaluate this offer, the company has gathered the following information regarding its own cost of producing the Part H internally: Per unit 15,000 units per year Direct materials 12 180,000 Direct Labour 12 180,000 Variable manufacturing overhead 3 45,000 Fixed manufacturing overhead (one-third belongs to supervisory salaries; two-thirds belongs to the depreciation of special equipment) 6 90,000 Required (show your calculation): i) Assuming that the company has no alternative use for the facilities now being used to produce Part H, should the outside supplier’s offer be accepted? Explain your answer. Type in answers to Question 4. a. i (expand the space as needed) ii) Suppose that if Part H were purchased, the company could use the freed capacity to launch a new product. The segment margin of the new product would be $75,000 per year. Should the company accept the offer to buy Part H for $31 per unit? Explain your answer. Type in answers to Question 4. a. ii. (expand the space as needed) Fine Juice Limited manufactures and sells organic juice for special events. Its manufacturing plant has the capacity to produce 17,000 bottles each month; its current monthly production is 15,500 bottles. The company’s regular selling price is $120 per bottle. The following data are provided for the current level of production: Variable costs: ($) Direct materials 850,000 Direct labour 475,000 Selling and administrative 17,000 Fixed costs: Manufacturing 705,175 Selling and administrative 265,675 The company has just received a special one-time order for 950 bottles at $86 each. This order would not affect fixed costs. Required: i) Should the company accept this special order? Explain your answers. Type in answers to Question 4. b. i. (expand the space as needed) ii) Assume that no variable selling and administrative costs would be incurred for this particular order. All other data presented above would remain the same. Should the company accept this special order? Explain your answers. Type in answers to Question 4. b. ii. (expand the space as needed)
Heavy Metals produces various electronics items for use in heavy machines. The company usually produces all the necessary parts for its products. However, an outside supplier has recently offered to sell a specialized part – Part H – to the company for $31 per unit. To evaluate this offer, the company has gathered the following information regarding its own cost of producing the Part H internally:
Per unit
15,000 units per year
Direct materials
12
180,000
Direct Labour
12
180,000
Variable manufacturing overhead
3
45,000
Fixed manufacturing overhead (one-third belongs to supervisory salaries; two-thirds belongs to the depreciation of special equipment)
6
90,000
Required (show your calculation):
i) Assuming that the company has no alternative use for the facilities now being used to produce Part H, should the outside supplier’s offer be accepted? Explain your answer.
Type in answers to Question 4. a. i (expand the space as needed)
ii) Suppose that if Part H were purchased, the company could use the freed capacity to launch a new product. The segment margin of the new product would be $75,000 per year. Should the company accept the offer to buy Part H for $31 per unit? Explain your answer.
Type in answers to Question 4. a. ii. (expand the space as needed)
Fine Juice Limited manufactures and sells organic juice for special events. Its manufacturing plant has the capacity to produce 17,000 bottles each month; its current monthly production is 15,500 bottles. The company’s regular selling price is $120 per bottle. The following data are provided for the current level of production:
Variable costs:
($)
Direct materials
850,000
Direct labour
475,000
Selling and administrative
17,000
Fixed costs:
Manufacturing
705,175
Selling and administrative
265,675
The company has just received a special one-time order for 950 bottles at $86 each. This order would not affect fixed costs.
Required:
i) Should the company accept this special order? Explain your answers.
Type in answers to Question 4. b. i. (expand the space as needed)
ii) Assume that no variable selling and administrative costs would be incurred for this particular order. All other data presented above would remain the same. Should the company accept this special order? Explain your answers.
Type in answers to Question 4. b. ii. (expand the space as needed)
Definition Video Definition Accounting method wherein the cost of a tangible asset is spread over the asset's useful life. Depreciation usually denotes how much of the asset's value has been used up and is usually considered an operating expense. Depreciation occurs through normal wear and tear, obsolescence, accidents, etc. Video
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
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.