Sandhill Pets has recently started to manufacture talking toy pets. The cost structure to manufacture 15,000 of these toy pets is as follows: Direct materials ($31 per pet) Direct labour ($25 per pet) Variable overhead ($10 per pet) Allocated fixed overhead ($20 per pet) Total $465,000 375,000 150,000 300,000 $1,290,000 Sandhill Pets is approached by Tamarisk Inc., which offers to make the toy pets for $78 per unit. Using incremental analysis, determine whether Sandhill Pets should accept this offer under each of the following independent assumptions:
Sandhill Pets has recently started to manufacture talking toy pets. The cost structure to manufacture 15,000 of these toy pets is as follows: Direct materials ($31 per pet) Direct labour ($25 per pet) Variable overhead ($10 per pet) Allocated fixed overhead ($20 per pet) Total $465,000 375,000 150,000 300,000 $1,290,000 Sandhill Pets is approached by Tamarisk Inc., which offers to make the toy pets for $78 per unit. Using incremental analysis, determine whether Sandhill Pets should accept this offer under each of the following independent assumptions:
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Sandhill Pets has recently started to manufacture talking toy pets.
The cost structure to manufacture 15,000 of these toy pets is as follows:
Direct materials ($31 per pet)
Direct labour ($25 per pet)
Variable overhead ($10 per pet)
Allocated fixed overhead ($20 per pet)
Total
Cost
Total annual cost
Total cost
Sandhill Pets is approached by Tamarisk Inc., which offers to make the toy pets for $78 per unit.
Using incremental analysis, determine whether Sandhill Pets should accept this offer under each of the following independent
assumptions:
:Opportunity cost
$465,000
Prepare an incremental analysis. Assume that none of the fixed overhead is avoidable. However, if the pets are purchased from
Tamarisk, Sandhill Pets can use the released productive resources to generate additional income of $214,600. (Enter savings with a
negative sign preceding the number eg.-15,000 or parenthesis, eg. (15,000). While alternate approaches are possible, irrelevant fixed
costs should be included in both options when solving this problem.)
375,000
$
Sandhill Pets should
150,000
300,000
$1,290,000
Make
Should Sandhill Pets continue to make the pets or buy the pets?
the pets.
Buy
$
$
Cost (Saving)
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