Specialty Metal Products, Inc. manufactures filters for use in custom over-the-range hoods. The costs per unit, for a batch of 10,000 filters, are as follows. Direct materials $4.00 Direct labor 2.00 Variable overhead 1.00 Fixed overhead 4.00 Total costs $11.00 Custom Kitchens has offered to sell 10,000 filters to Specialty Metal Products for $12 per filter. If Specialty Metal Products accepts Custom Kitchens’ offer, the facilities used to manufacture filters could be used to produce BBQ grates. Revenues from the sale of BBQ grates are estimated at $19,000, with variable costs amounting to 80% of sales. In addition, $1 per unit of the fixed overhead associated with the manufacture of filters could be eliminated. Compute the following: Cost to make filters Answer Cost to buy filters Answer Should Specialty Metal Products accept Custom Kitchens’ offer? A. Yes, the cost to purchase the filters is less than the cost to make them. B. No, the cost to purchase the filters is more than the cost to make them.
Specialty Metal Products, Inc. manufactures filters for use in custom over-the-range hoods. The costs per unit, for a batch of 10,000 filters, are as follows. Direct materials $4.00 Direct labor 2.00 Variable overhead 1.00 Fixed overhead 4.00 Total costs $11.00 Custom Kitchens has offered to sell 10,000 filters to Specialty Metal Products for $12 per filter. If Specialty Metal Products accepts Custom Kitchens’ offer, the facilities used to manufacture filters could be used to produce BBQ grates. Revenues from the sale of BBQ grates are estimated at $19,000, with variable costs amounting to 80% of sales. In addition, $1 per unit of the fixed overhead associated with the manufacture of filters could be eliminated. Compute the following: Cost to make filters Answer Cost to buy filters Answer Should Specialty Metal Products accept Custom Kitchens’ offer? A. Yes, the cost to purchase the filters is less than the cost to make them. B. No, the cost to purchase the filters is more than the cost to make them.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Make or Buy
Specialty Metal Products, Inc. manufactures filters for use in custom over-the-range hoods. The costs per unit, for a batch of 10,000 filters, are as follows.
| Direct materials | $4.00 |
| Direct labor | 2.00 |
| Variable |
1.00 |
| Fixed overhead | 4.00 |
| Total costs | $11.00 |
Custom Kitchens has offered to sell 10,000 filters to Specialty Metal Products for $12 per filter. If Specialty Metal Products accepts Custom Kitchens’ offer, the facilities used to manufacture filters could be used to produce BBQ grates. Revenues from the sale of BBQ grates are estimated at $19,000, with variable costs amounting to 80% of sales. In addition, $1 per unit of the fixed overhead associated with the manufacture of filters could be eliminated.
Compute the following:
| Cost to make filters | Answer |
| Cost to buy filters | Answer |
Should Specialty Metal Products accept Custom Kitchens’ offer?
A. Yes, the cost to purchase the filters is less than the cost to make them.
B. No, the cost to purchase the filters is more than the cost to make them.
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