Task 2: CLO4 OBJECTIVE: To enable learners to identify the relevant costs and benefits from costs and revenue information available in the financial database to aid decision making on time. REQUIREMENT: Short term decision making Question Selma Corporation uses Part PB7 in one of its products. The company's Accounting Department reports the following costs to produce 7,000 units of the PB7 that are needed every year. $ per unit Direct materials 7.00 Direct labour 6.00 Variable overhead 5.60 Supervisor's salary Depreciation of special equipment Allocated general overhead 4.70 1.50 5.40 An outside supplier has offered to make the part and sell it to the company for $28.30 each. If this offer is accepted, the supervisor's salary and all of the variable costs, including direct labor, can be avoided. The special equipment used to make the part was purchased many years ago and has no salvage value or other use. The allocated general overhead represents fixed costs of the entire company. If the outside supplier's offer were accepted, only $9,000 of these allocated general overhead costs would be avoided. Required: Should Selma Corporation buy PB7 from the supplier or continue producing the part internally? Shows the effect on the company's total net operating income by comparing both alternatives.
Task 2: CLO4 OBJECTIVE: To enable learners to identify the relevant costs and benefits from costs and revenue information available in the financial database to aid decision making on time. REQUIREMENT: Short term decision making Question Selma Corporation uses Part PB7 in one of its products. The company's Accounting Department reports the following costs to produce 7,000 units of the PB7 that are needed every year. $ per unit Direct materials 7.00 Direct labour 6.00 Variable overhead 5.60 Supervisor's salary Depreciation of special equipment Allocated general overhead 4.70 1.50 5.40 An outside supplier has offered to make the part and sell it to the company for $28.30 each. If this offer is accepted, the supervisor's salary and all of the variable costs, including direct labor, can be avoided. The special equipment used to make the part was purchased many years ago and has no salvage value or other use. The allocated general overhead represents fixed costs of the entire company. If the outside supplier's offer were accepted, only $9,000 of these allocated general overhead costs would be avoided. Required: Should Selma Corporation buy PB7 from the supplier or continue producing the part internally? Shows the effect on the company's total net operating income by comparing both alternatives.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Task 2: CLO4
OBJECTIVE: To enable learners to identify the relevant costs and benefits from costs and revenue
information available in the financial database to aid decision making on time.
REQUIREMENT: Short term decision making
Question
Selma Corporation uses Part PB7 in one of its products. The company's Accounting Department reports the
following costs to produce 7,000 units of the PB7 that are needed every year.
$ per unit
Direct materials
7.00
Direct labour
6.00
Variable overhead
5.60
Supervisor's salary
Depreciation of special equipment
Allocated general overhead
4.70
1.50
5.40
An outside supplier has offered to make the part and sell it to the company for $28.30 each. If this offer is
accepted, the supervisor's salary and all of the variable costs, including direct labor, can be avoided. The
special equipment used to make the part was purchased many years ago and has no salvage value or other
use. The allocated general overhead represents fixed costs of the entire company. If the outside supplier's
offer were accepted, only $9,000 of these allocated general overhead costs would be avoided.
Required:
Should Selma Corporation buy PB7 from the supplier or continue producing the part internally? Shows the
effect on the company's total net operating income by comparing both alternatives.
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