Problem 8-24 (Part Level Submission) (a1) SHOW SOLUTION SHOW ANSWER LINK TO TEXT
ID: 2553149 • Letter: P
Question
Problem 8-24 (Part Level Submission)
(a1)
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SHOW ANSWER
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(a2)
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(b1)
Problem 8-24 (Part Level Submission)
Henry Horticultural, Ltd., is a leading producer of greenhouse irrigation systems. Currently, the company manufactures the timer unit used in each of its systems. Based on an annual production of 40,910 timers, the company has calculated the following unit costs. Direct fixed costs include supervisory and clerical salaries and equipment depreciation.Direct materials $11 Direct labor 7 Variable manufacturing overhead 4 Direct fixed manufacturing overhead 9 (30% salaries, 70% depreciation) Allocated fixed manufacturing overhead 7 Total unit cost $38
Talbert Time Pieces has offered to provide the timer units to Henry at a price of $35 per unit. If Henry accepts the offer, the current timer unit supervisory and clerical staff will be laid off.
Explanation / Answer
a1)
Statement of Relevant Cost-
a2)
No compny should reject the offer as the cost of production is lower than cost of buying
Particulars Amount Direct Material $ 11 Direct Labour $ 7 Variable Manu Overhead $ 4 Total Relevant Cost of Unit $ 22 Buying Cost $ 35 Hence it should be produced by Company as cost of production is less than cost of buying