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QUESTION 5 Cosi Ltd. manufactures a variety of engines for use in heavy equipment. The company has always produced all the necessary parts for its engines, including all of the carburettors. An outside supplier has offered to produce and sell one type of carburettor to Cosi Ltd., for a cost of £35.00 per unit. To evaluate this offer, the company has gathered the following information relating to its own cost of producing the carburettor internally: Per Unit 15,000 units per year Direct material £14.00 £210,000 Direct labour £10.00 £150,000 Variable manufacturing overhead £3.00 £45,000 Fixed manufacturing overhead, traceable £6.00" £90,000 Fixed manufacturing overhead. Allocated £9.00 £135,000 Total cost £42.00 £630,000 *One-third supervisory salaries; two-thirds depreciation of special equipment (no resale value).

QUESTION 5 Cosi Ltd. manufactures a variety of engines for use in heavy equipment. The company has always produced all the necessary parts for its engines, including all of the carburettors. An outside supplier has offered to produce and sell one type of carburettor to Cosi Ltd., for a cost of £35.00 per unit. To evaluate this offer, the company has gathered the following information relating to its own cost of producing the carburettor internally: Per Unit 15,000 units per year Direct material £14.00 £210,000 Direct labour £10.00 £150,000 Variable manufacturing overhead £3.00 £45,000 Fixed manufacturing overhead, traceable £6.00" £90,000 Fixed manufacturing overhead. Allocated £9.00 £135,000 Total cost £42.00 £630,000 *One-third supervisory salaries; two-thirds depreciation of special equipment (no resale value).

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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a) Supposing that the company has no alternative use for the facilities that are currently being
used to produce the carburettors, discuss whether or not the outside supplier’s offer should be
accepted. Show all computations’

QUESTION 5 Cosi Ltd. manufactures a variety of engines for use in heavy equipment. The company has always produced all the necessary parts for its engines, including all of the carburettors. An outside supplier has offered to produce and sell one type of carburettor to Cosi Ltd., for a cost of £35.00 per unit. To evaluate this offer, the company has gathered the following information relating to its own cost of producing the carburettor internally: Per Unit 15,000 units per year Direct material £14.00 £210,000 Direct labour £10.00 £150,000 Variable manufacturing overhead £3.00 £45,000 Fixed manufacturing overhead, traceable £6.00* £90,000 Fixed manufacturing overhead. Allocated £9.00 £135,000 Total cost £42.00 £630,000 *One-third supervisory salaries; two-thirds depreciation of special equipment (no resale value). Required: a) Supposing that the company has no alternative use for the facilities that are currently being used to produce the carburettors, discuss whether or not the outside supplier's offer should be accepted. Show all computations". (15 marks).
Transcribed Image Text:QUESTION 5 Cosi Ltd. manufactures a variety of engines for use in heavy equipment. The company has always produced all the necessary parts for its engines, including all of the carburettors. An outside supplier has offered to produce and sell one type of carburettor to Cosi Ltd., for a cost of £35.00 per unit. To evaluate this offer, the company has gathered the following information relating to its own cost of producing the carburettor internally: Per Unit 15,000 units per year Direct material £14.00 £210,000 Direct labour £10.00 £150,000 Variable manufacturing overhead £3.00 £45,000 Fixed manufacturing overhead, traceable £6.00* £90,000 Fixed manufacturing overhead. Allocated £9.00 £135,000 Total cost £42.00 £630,000 *One-third supervisory salaries; two-thirds depreciation of special equipment (no resale value). Required: a) Supposing that the company has no alternative use for the facilities that are currently being used to produce the carburettors, discuss whether or not the outside supplier's offer should be accepted. Show all computations". (15 marks).
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