Homework Help is Here – Start Your Trial Now!
Business
Accounting
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

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
See similar textbooks
icon
Related questions
Question
100%

Please answer the following

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
Transcribed Image Text: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
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 3 steps

SEE SOLUTIONCheck out a sample Q&A here
Blurred answer
Knowledge Booster
Market Efficiency
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Recommended textbooks for you
FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
Accounting
ISBN:
9781259964947
Author:
Libby
Publisher:
MCG
Accounting
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education
SEE MORE TEXTBOOKS