Problem 8-24 Crane Water Co. is a leading producer of greenhouse irrigation syst
ID: 2558535 • Letter: P
Question
Problem 8-24 Crane Water Co. is a leading producer of greenhouse irrigation systems. Currently, the company manufactures the timer unit used in each of its and clerical salaries and equipment depreciation. Direct materials Direct labor Variable manufacturing overhead Direct fixed manufacturing overhead Allocated fixed manufacturing overhead 7 on an annual production of 40,320 timers, the company has calculated the following unit costs. Direct fixed costs include supervisory $12 9 (30% salaries, 70% depreciation) Total unit cost $37 Clifton Clocks has offered to provide the timer units to Crane at a price of $33 per unit. If Crane accepts the offer, the current timer unit supervisory and clerical staff will be laid of Calculate the total relevant cost to make or buy the timer units. (Round answers to o decimal places, e.g. 5,2s0.) Buy Total relevant cost $ LINK TO TEXT LINK TO VÍDEO 13 PM ch 4/1/2018Explanation / Answer
8-24)
Allocated fixed cost and depreciation cost will be incurred whether units are manufactured internally or purchased from outside supplier thus irrelevant.
b))No offer should not be accepted as the cost of purchase is more than cost of making
c)Total relevant cost to make :12+7+2 = 21*40320 = 846720
Cost incurred for making purchase :33*40320= 1330560
Profit from new line : 85580[11-8]=256740
Net relevant cost if offer is accepted : 1330560-256740 = 1073820
***Salary of staff becomes irrelevant as same will be transfered to making of new line .
d)No ,since cost tof purchase is still more than cost of making.
Make Buy Per unit cost 12+7+2+(9*.30) = 23.7 33 Total relevant cost 23.7*40320 = 955584 33*40320=1330560