Speedy Bikes currently manufactures the bike saddles it uses for the bicycles it builds at its Halifax production facilities. Speedy has been approached by Pokey Inc, a company in Prince Edward Island, who has indicated they can make the identical saddles for Speedy at a cost of $10 each. The accounting department at Speedy has been asked to summarize the costs of manufacturing the saddles over the past fiscal year. This is what they provided: Costs Direct materials $21,000 Direct labour $15,000 Variable overhead $10,000 Equipment depreciation $14,000 Allocated fixed overhead $20,000 Total costs $80,000 Total saddles produced 5,000 The accountants believe that 10% of the fixed overhead costs could be saved if the saddle was not manufactured at the Halifax facility. The equipment used to manufacture the saddles is a specialized piece of equipment and cannot be used to make any other parts. Also, it is believed the equipment has no value to anyone. Required: Should Speedy accept Pokey's offer? Support your answer with an analysis of the costs. Show your calculations

Speedy Bikes currently manufactures the bike saddles it uses for the bicycles it builds at its Halifax production facilities. Speedy has been approached by Pokey Inc, a company in Prince Edward Island, who has indicated they can make the identical saddles for Speedy at a cost of $10 each. The accounting department at Speedy has been asked to summarize the costs of manufacturing the saddles over the past fiscal year. This is what they provided: Costs Direct materials $21,000 Direct labour $15,000 Variable overhead $10,000 Equipment depreciation $14,000 Allocated fixed overhead $20,000 Total costs $80,000 Total saddles produced 5,000 The accountants believe that 10% of the fixed overhead costs could be saved if the saddle was not manufactured at the Halifax facility. The equipment used to manufacture the saddles is a specialized piece of equipment and cannot be used to make any other parts. Also, it is believed the equipment has no value to anyone. Required: Should Speedy accept Pokey's offer? Support your answer with an analysis of the costs. Show your calculations

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter6: Activity-based, Variable, And Absorption Costing

Section: Chapter Questions

Problem 6PA: Box Springs, Inc., makes two sizes of box springs: twin and double. The direct material for the twin...

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