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, Şhurp has gathered the following information relating to its own cost of producing the thermostat internally: 15,000 units per year DM P12 P180,000 DL 16 240,000 VMOH 2 30,000 FMOH, traceable *10 150,000 300,000 P900,000 FMOH, common 20 Total cost P60 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?
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, Şhurp has gathered the following information relating to its own cost of producing the thermostat internally: 15,000 units per year DM P12 P180,000 DL 16 240,000 VMOH 2 30,000 FMOH, traceable *10 150,000 300,000 P900,000 FMOH, common 20 Total cost P60 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?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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