Exercise 3 (Make or Buy a Component)Cañada Inc., manufactures a variety of heating and air-conditioning units.The company is currently manufacturing all of its own component parts. Anoutside supplier has offered to sell a thermostat to Cañada for P200 per unit.To evaluate this offer, Cañada, Inc., has gathered the following informationrelating to its own cost of producing the thermostat internally:15,000 UnitsYearPerUnitР60perP 900,0001,200,000150,000750,000Direct materials.Direct labor80Variable manufacturing overhead.Fixed manufacturing overhead, traceable.Fixed manufacturing overhead, common,allocated...1050*but1,500,000P4,500,000100Total cost...P300* 40% supervisory salaries; 60% depreciation of special equipment (no resalevalue).Required:1. Assuming that the company has no alternative use for the facilities nowbeing used to produce the thermostat, should the outside supplier's offerbe accepted? Show all computations.2. Suppose that if the thermostats were purchased, Cañada, Inc., could usethe freed capacity to launch a new product. The segment margin of thenew product would be P650,000 per year. Should Cañada, Inc., acceptthe offer to buy the thermostats from the outside supplier for P200 each?Show computations.

Make-or-Buy decision: A strategic choice between the goods manufacture inside or buy from the…

Exercise 3 (Make or Buy a Component) Cañada Inc., manufactures a variety of heating and air-conditioning units. The company is currently manufacturing all of its own component parts. An outside supplier has offered to sell a thermostat to Cañada for P200 per unit. To evaluate this offer, Cañada, Inc., has gathered the following information relating to its own cost of producing the thermostat internally: Per 15,000 Units per Year P 900,000 1,200,000 150,000 750,000 Unit Direct materials. Direct labor Р60 80 10 Variable manufacturing overhead. Fixed manufacturing overhead, traceable. Fixed manufacturing overhead, common, but allocated... 50* 1,500,000 P4,500,000 100 Total cost.... Р300 * 40% supervisory salaries; 60% depreciation of special equipment (no resale value). Required: 1. Assuming that the company has no alternative use for the facilities now being used to produce the thermostat, should the outside supplier's offer be accepted? Show all computations. 2. Suppose that if the thermostats were purchased, Cañada, Inc., could use the freed capacity to launch a new product. The segment margin of the new product would be P650,000 per year. Should Cañada, Inc., accept the offer to buy the thermostats from the outside supplier for P200 each? Show computations.

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter6: Cost-volume-profit Analysis

Section: Chapter Questions

Problem 1PB: Classify costs Cromwell Furniture Company manufactures sofas for distribution to several major...