Achievable Company produces component A1 for use in one of its electronic gadgets. Normal annual production for the item is 100,000 units. The cost for a 100-unit batch of the part are: Direct materials, P520; Direct labor, P200; Variable overhead, P240; Fixed overhead, P320. Isell Inc. has offered to sell all 100,000 units it will need during the coming year for P1,200 per 100 units. If Achievable accepts the offer, the facilities used to manufacture A1 could be used in the production of component B2. This change would save Achievable P180,000 in relevant costs. In addition, a P200,000 cost item included in fixed overhead is specifically related to A1 and would be eliminated. What is the net advantage of choosing the better alternative? Indicate the better alternative and the amount.
Achievable Company produces component A1 for use in one of its electronic gadgets. Normal annual production for the item is 100,000 units. The cost for a 100-unit batch of the part are: Direct materials, P520; Direct labor, P200; Variable overhead, P240; Fixed overhead, P320. Isell Inc. has offered to sell all 100,000 units it will need during the coming year for P1,200 per 100 units. If Achievable accepts the offer, the facilities used to manufacture A1 could be used in the production of component B2. This change would save Achievable P180,000 in relevant costs. In addition, a P200,000 cost item included in fixed overhead is specifically related to A1 and would be eliminated. What is the net advantage of choosing the better alternative? Indicate the better alternative and the amount.
Managerial Accounting
15th Edition
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:Carl Warren, Ph.d. Cma William B. Tayler
Chapter8: Budgeting
Section: Chapter Questions
Problem 4CMA: Krouse Company produces two products, forged putter heads and laminated putter heads, which are sold...
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Achievable Company produces component A1 for use in one of its electronic gadgets. Normal annual production for the item is 100,000 units. The cost for a 100-unit batch of the part are: Direct materials, P520; Direct labor, P200; Variable overhead, P240; Fixed overhead, P320. Isell Inc. has offered to sell all 100,000 units it will need during the coming year for P1,200 per 100 units. If Achievable accepts the offer, the facilities used to manufacture A1 could be used in the production of component B2. This change would save Achievable P180,000 in relevant costs. In addition, a P200,000 cost item included in fixed overhead is specifically related to A1 and would be eliminated. What is the net advantage of choosing the better alternative? Indicate the better alternative and the amount.
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