Example 1 Lingkod Company, a manufacturer of furniture sets, is considering to purchase the seat cushions needed for its chairs. The expected purchase price of these seat cushions is P50 per unit. Lingkod has been making its own seat cushions since it started operating. If it would continue to produce these cushions, the company expects to incur the ff costs: Raw materials - P13, Direct labor-P15, variable OH-P5 and Fixed OH (based on the average production requirement of 10,000 units)-P20. Should the company continue to make the seat cushion or buy from outside supplier? Example 2 Using the same data in example 1 for Lingkod Company, assume that 40% of the fixed factory OH could be eliminated if the company would discontinue the manufacture of seat cushions. Should the company make or buy the items? Example 3 Using the same data in example 1 for Lingkod Company, assume that 40% of the fixed factory OH could be eliminated if the company would discontinue the manufacture of seat cushions. Moreover, the facilities presently being used in the manufacture of seat cushions can be utilized to manufacture another part of the main product in case such facilities become vacant when the company decides to stop producing the seat cushion. This alternative use of the resources would result into cost savings of P100,000. Should the company make or buy the items?
Example 1
Lingkod Company, a manufacturer of furniture sets, is considering to purchase the seat cushions needed for its chairs. The expected purchase price of these seat cushions is P50 per unit. Lingkod has been making its own seat cushions since it started operating. If it would continue to produce these cushions, the company expects to incur the ff costs: Raw materials - P13, Direct labor-P15, variable OH-P5 and Fixed OH (based on the average production requirement of 10,000 units)-P20. Should the company continue to make the seat cushion or buy from outside supplier?
Example 2
Using the same data in example 1 for Lingkod Company, assume that 40% of the fixed factory OH could be eliminated if the company would discontinue the manufacture of seat cushions. Should the company make or buy the items?
Example 3
Using the same data in example 1 for Lingkod Company, assume that 40% of the fixed factory OH could be eliminated if the company would discontinue the manufacture of seat cushions. Moreover, the facilities presently being used in the manufacture of seat cushions can be utilized to manufacture another part of the main product in case such facilities become vacant when the company decides to stop producing the seat cushion. This alternative use of the resources would result into cost savings of P100,000. Should the company make or buy the items?
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