Sage Company is operating at 90% of capacity and is currently purchasing a part used in its manufacturing operations for $14.00 per unit. The unit cost for the business to make the part is $22.00, including fixed costs, and $11.00, not including fixed costs. If 39,658 units of the part are normally purchased during the year but could be manufactured using unused capacity, the amount of differential cost increase or decrease from making the part rather than purchasing it would be a

Sage Company is operating at 90% of capacity and is currently purchasing a part used in its manufacturing operations for $14.00 per unit. The unit cost for the business to make the part is $22.00, including fixed costs, and $11.00, not including fixed costs. If 39,658 units of the part are normally purchased during the year but could be manufactured using unused capacity, the amount of differential cost increase or decrease from making the part rather than purchasing it would be a

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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Liguanea Pharmaceuticals Limited (LPL) currently sells a product the “sovereign” for $2200. This price is based on annual demand. Analysis indicates that if the company increase the price by $100 annual demand will fall by 400 units. At the current price 4,000 units are demanded. The product has the following cost structure per unit: Direct material $225 Direct labour $75 Direct expenses $150 Variable overheads $90 Fixed overheads $300 Variable selling expense $60 Fixed selling expenses $450 Management wants to know the optimal production quantity and its maximum profits. Determine the price equation Determine the optimal price and quantity Determine the optimal profits.
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Stripe Company has been purchasing a component, Part Q, for P19.20 per unit. Stripe is currently operating at 70% of capacity, and no significant increase in production is anticipated in the near future. The cost of manufacturing a unit of Part Q is estimated as follows: Direct materials P11.50 Direct labor 4.50 Variable factory overhead 1.12 Fixed factory overhead 3.15 Total P20.27 Should the company make or buy the component? Prepare a differential analysis report dated March 12 of the current year to support your answer.
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