Shurp Company manufactures a variety of air-conditioning units. The company is currently manufacturing all of its component parts. An outside supplier has offered to sell a thermostat to Shurp for P40 per unit. To evaluate this offer, Shurp has gathered the following information relating to its own cost of producing the thermostat internally: 15,000 units per year DM P12 P180,000 240,000 DL 16 VMOH 2 30,000 FMOH, traceable *10 150,000 FMOH, common 20 300,000 Total cost P60 P900,000 40% supervisory salaries; 60% depreciation of special equipment (no resale value)
Shurp Company manufactures a variety of air-conditioning units. The company is currently manufacturing all of its component parts. An outside supplier has offered to sell a thermostat to Shurp for P40 per unit. To evaluate this offer, Shurp has gathered the following information relating to its own cost of producing the thermostat internally: 15,000 units per year DM P12 P180,000 240,000 DL 16 VMOH 2 30,000 FMOH, traceable *10 150,000 FMOH, common 20 300,000 Total cost P60 P900,000 40% supervisory salaries; 60% depreciation of special equipment (no resale value)
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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I need an answer for number 2, please, thank you!
Transcribed Image Text:Shurp Company manufactures a variety of air-conditioning units. The company is currently
manufacturing all of its component parts. An outside supplier has offered to sell a thermostat to Shurp
for P40 per unit. To evaluate this offer, Shurp has gathered the following information relating to its own
cost of producing the thermostat internally:
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15,000 units per year
P180,000
240,000
30,000
150,000
300,000
P900,000
DM
P12
DL
16
умон
2
FMOH, traceable
*10
FMOH, common
20
Total cost
Рбо
40% supervisory salaries; 60% depreciation of special equipment (no resale value)
1. Assuming that the company has no alternative use for the facilities now being used to produce the
thermostat, should the outside supplier's offer be accepted?
2. Suppose that if the thermostat were purchased, Shurp could use the freed capacity to launch a new
product. The segment margin of the new product would be P130,000 per year. Should Shurp accept the
offer to buy the thermostats from the outside supplier for P40 each?
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