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 would expect to incur the following costs: Raw materials P 13 Direct labor 15 Variable overhead 5 Fixed overhead (based on the average production requirement of 10,000 units) 20 Total production cost per unit P53 Required: 1. Should Lingkod manufacture the seat cushions? Why or why not? 2. Assume that 40% of the fixed factory overhead could be eliminated if the company would discontinue the manufacture of seat cushions. Should Lingkod manufacture the seat cushions? Why or why not? 3. a. Assume that 40% of the fixed factory overhead could be eliminated if the company would discontinue the manufacture of seat cushions.
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 would expect to incur the following costs: Raw materials P 13 Direct labor 15 Variable overhead 5 Fixed overhead (based on the average production requirement of 10,000 units) 20 Total production cost per unit P53 Required: 1. Should Lingkod manufacture the seat cushions? Why or why not? 2. Assume that 40% of the fixed factory overhead could be eliminated if the company would discontinue the manufacture of seat cushions. Should Lingkod manufacture the seat cushions? Why or why not? 3. a. Assume that 40% of the fixed factory overhead could be eliminated if the company would discontinue the manufacture of seat cushions.
Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter17: Activity Resource Usage Model And Tactical Decision Making
Section: Chapter Questions
Problem 18E: A company is considering a special order for 1,000 units to be priced at 8.90 (the normal price...
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Transcribed Image Text: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 would expect to incur the following costs:
Raw materials
P 13
Direct labor
15
Variable overhead
Fixed overhead (based on the average production requirement of 10,000 units) 20
Total production cost per unit P53
Required:
1. Should Lingkod manufacture the seat cushions? Why or why not?
2. Assume that 40% of the fixed factory overhead could be eliminated if the company would
discontinue the manufacture of seat cushions. Should Lingkod manufacture the seat cushions?
Why or why not?
3.
a. Assume that 40% of the fixed factory overhead could be eliminated if the company would
discontinue the manufacture of seat cushions.
b. Assume further that MATERIALS and LABOR COSTS are expected to INCREASE by 20%
next period.
Moreover, the facilities 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 cushions. This alternative use of resources would
result into cost savings of P100,000 for Lingkod Company.
d. Assume further that the company's requirement for seat cushions is expected to increase by
4,000 units next period.
C.
Activ
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