Home Centre manulactures 20,000 units of part A-1 each year for use on its production line. At this level of activity, the cost per unit for Part A-1 is as below: Direct materials Direct labour Variable manufacturing overheads Fixed manufacturing overheads Tolal cost per unit $4.80 $7.00 $3.20 $10.00 $25.00 An outside supplier has offered to sell 20,000 units of Part A-1 each year to Home Contre for $ 23.50 per part. If Home Centre accepts this offer, the facilities now being used to manufacture Part A-1 could be rented to another company at an annual rental of $150,000. However, Home Centre has determined that $6 of the fixed manufacturing overhead being applied to Part A-1 would continue even if Part A-1 were purchased from the outside supplier. Required: Using Make or Buy technique, prepare computations showing how much profits will ncrease or decrease if the outside supplier's offer is accepted.

Home Centre manulactures 20,000 units of part A-1 each year for use on its production line. At this level of activity, the cost per unit for Part A-1 is as below: Direct materials Direct labour Variable manufacturing overheads Fixed manufacturing overheads Tolal cost per unit $4.80 $7.00 $3.20 $10.00 $25.00 An outside supplier has offered to sell 20,000 units of Part A-1 each year to Home Contre for $ 23.50 per part. If Home Centre accepts this offer, the facilities now being used to manufacture Part A-1 could be rented to another company at an annual rental of $150,000. However, Home Centre has determined that $6 of the fixed manufacturing overhead being applied to Part A-1 would continue even if Part A-1 were purchased from the outside supplier. Required: Using Make or Buy technique, prepare computations showing how much profits will ncrease or decrease if the outside supplier's offer is accepted.

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter10: Short-term Decision Making

Section: Chapter Questions

Problem 6PA: Gent Designs requires three units of part A for every unit of Al that it produces. Currently, part A...

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