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QUESTION 5. Santos Company currently manufactures one of its crucial parts at a cost of $3.40 per unit. This cost is based on a normal production rate of 50,000 units per year. Variable costs are S1.50 per unit, fixed costs related to making this part are $50,000 per year, and allocated fixed costs are $45,000 per year. Allocated fixed costs are unavoidable whether the company makes or buys the part. Santos is considering buying the part from a supplier for a quoted price of $2.70 per unit guaranteed for a three-year period. Should the company continue to manufacture the part, or should it-buy the part from the outside supplier? Support your answer with analyses.

QUESTION 5. Santos Company currently manufactures one of its crucial parts at a cost of $3.40 per unit. This cost is based on a normal production rate of 50,000 units per year. Variable costs are S1.50 per unit, fixed costs related to making this part are $50,000 per year, and allocated fixed costs are $45,000 per year. Allocated fixed costs are unavoidable whether the company makes or buys the part. Santos is considering buying the part from a supplier for a quoted price of $2.70 per unit guaranteed for a three-year period. Should the company continue to manufacture the part, or should it-buy the part from the outside supplier? Support your answer with analyses.

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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Please help me do excercise 5
Det e T Compute the degree of operating leverage (DOL) for each company. Identify which company benefits more from a 20% increase in sales and explain why. QUESTION 5. Santos Company currently manufactures one of its crucial parts at a cost of $3.40 per unit. This cost is based on a normal production rate of 50,000 units per year. Variable costs are S1.50 per unit, fixed costs related to making this part are $50,000 per year, and allocated fixed costs are $45,000 per year. Allocated fixed costs are unavoidable whether the company makes or buys the part. Santos is considering buying the part from a supplier for a quoted price of $2.70 per unit guaranteed for a three-year period. Should the company continue to manufacture the part, or should it-buy the part from the outside supplier? Support your answer with analyses. QUESTION 6. Jammin Co. manufactures and markets several products. Management is considering the future of one product, electronic keyboards, that has not been as profitable as planned. Since this product is manufactured and marketed independently of the other products, its total costs can be precisely measured. Next year's plans call for a $225 selling price per unit. The fixed costs for the year are expected to be $30,000, up to a maximum capacity of 700 units. Forecasted variable costs are S150 per unit. Required: 1. Estimate the keyboards' break-even point in terms of (a) sales units and (b) sales dollars. 2 of4 3 PM FINA
Transcribed Image Text:Det e T Compute the degree of operating leverage (DOL) for each company. Identify which company benefits more from a 20% increase in sales and explain why. QUESTION 5. Santos Company currently manufactures one of its crucial parts at a cost of $3.40 per unit. This cost is based on a normal production rate of 50,000 units per year. Variable costs are S1.50 per unit, fixed costs related to making this part are $50,000 per year, and allocated fixed costs are $45,000 per year. Allocated fixed costs are unavoidable whether the company makes or buys the part. Santos is considering buying the part from a supplier for a quoted price of $2.70 per unit guaranteed for a three-year period. Should the company continue to manufacture the part, or should it-buy the part from the outside supplier? Support your answer with analyses. QUESTION 6. Jammin Co. manufactures and markets several products. Management is considering the future of one product, electronic keyboards, that has not been as profitable as planned. Since this product is manufactured and marketed independently of the other products, its total costs can be precisely measured. Next year's plans call for a $225 selling price per unit. The fixed costs for the year are expected to be $30,000, up to a maximum capacity of 700 units. Forecasted variable costs are S150 per unit. Required: 1. Estimate the keyboards' break-even point in terms of (a) sales units and (b) sales dollars. 2 of4 3 PM FINA
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