Unicorn Company has been manufacturing its own seat for its bicycles. The company is currently operating at 100% plant capacity. Every year, the company has a normal production of 30,000 bicycle seats. The company cost accountant provides the following costs data information for one unit of bicycle seat: Direct materials RM6.30 Direct labour 3.20 2.40 Variable manufacturing overhead Total variable manufacturing costs RM11.90 During the year, the company receives an offer from a supplier to manufacture the bicycle seat at a price of RM14 per unit. If Unicorn Company accepts the supplier's offer, all variable manufacturing costs will be eliminated, but 80% of fixed manufacturing overhead amounted to RM46,000 currently being charged to the bicycle seat will have to be absorbed by other products. The cost accountant informed that if the bicycle seats are purchased from the supplier, Unicorn Company can use the released capacity resources to generate an additional income of RM30,000. Required 1) Prepare an incremental analysis for the decision to make or buy the bicycle seat 2) Should Unicorn Company make or buy the bicycle seat. Explain your answer.

Unicorn Company has been manufacturing its own seat for its bicycles. The company is currently operating at 100% plant capacity. Every year, the company has a normal production of 30,000 bicycle seats. The company cost accountant provides the following costs data information for one unit of bicycle seat: Direct materials RM6.30 Direct labour 3.20 2.40 Variable manufacturing overhead Total variable manufacturing costs RM11.90 During the year, the company receives an offer from a supplier to manufacture the bicycle seat at a price of RM14 per unit. If Unicorn Company accepts the supplier's offer, all variable manufacturing costs will be eliminated, but 80% of fixed manufacturing overhead amounted to RM46,000 currently being charged to the bicycle seat will have to be absorbed by other products. The cost accountant informed that if the bicycle seats are purchased from the supplier, Unicorn Company can use the released capacity resources to generate an additional income of RM30,000. Required 1) Prepare an incremental analysis for the decision to make or buy the bicycle seat 2) Should Unicorn Company make or buy the bicycle seat. Explain your answer.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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