RDX Corporation produces washing machines and has always manufactured all the necessary parts. An external supplier has offered to sell a motor to the corporation for $35 each. To evaluate the offer the following costs relative to the current production of the motor has been extracted: Direct Materials Direct Labour Variable Manufacturing Overhead Fixed Manufacturing Overhead Per Unit $ 15 $ 12 $ 3 $ 20 15,000 Per Year $ 225,000 $ 180,000 $ 45,000 $ 300,000 Required: a. Assuming that the corporation has no alternative use for the facilities presently being used to manufacture the motor, should the corporation accept the offer to buy the part? b. Suppose that the corporation could use the spare facilities to produce another product which could generate a contribution of $150,000 per year, would the decision be different?

RDX Corporation produces washing machines and has always manufactured all the necessary parts. An external supplier has offered to sell a motor to the corporation for $35 each. To evaluate the offer the following costs relative to the current production of the motor has been extracted: Direct Materials Direct Labour Variable Manufacturing Overhead Fixed Manufacturing Overhead Per Unit $ 15 $ 12 $ 3 $ 20 15,000 Per Year $ 225,000 $ 180,000 $ 45,000 $ 300,000 Required: a. Assuming that the corporation has no alternative use for the facilities presently being used to manufacture the motor, should the corporation accept the offer to buy the part? b. Suppose that the corporation could use the spare facilities to produce another product which could generate a contribution of $150,000 per year, would the decision be different?

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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