Martin's Company has purchased 20,000 pumps annually from Andres Company. Due to price increasing and it has reached P40 per unit last year, Martin is considering to manufacture the pump in their facilities. The accounting, manufacturing and engineering departments have prepared a report for management that includes the following estimate for an assembly run of 20,000 pumps. Additional production employees would be hired to manufacture the pumps but no additional equipment, space, or supervision would be needed. The report states that the total costs for 20,000 units are estimated at P979,000 or P48.95. The current purchase price is P40 per unit, so the report recommends continued to purchase of the product. DM P140,000 *DL 300,000 450,000 **MOH **General and Admin OH 450,000 P979,000 Total cost "Assembly labor consists of hourly production workers. **Manufacturing overhead is applied to products on a DL basis FOH 50% DLH VOH 100% DLн мон 150% DLH ***General and Admin overhead is applied at 10% of the total costs of materials, labor and manufacturing overhead. Was the analysis of three departments correct? Should the company continue to buy the product from outside supplier or manufacture its own? Explain and show computation.
Martin's Company has purchased 20,000 pumps annually from Andres Company. Due to price increasing and it has reached P40 per unit last year, Martin is considering to manufacture the pump in their facilities. The accounting, manufacturing and engineering departments have prepared a report for management that includes the following estimate for an assembly run of 20,000 pumps. Additional production employees would be hired to manufacture the pumps but no additional equipment, space, or supervision would be needed. The report states that the total costs for 20,000 units are estimated at P979,000 or P48.95. The current purchase price is P40 per unit, so the report recommends continued to purchase of the product. DM P140,000 *DL 300,000 450,000 **MOH **General and Admin OH 450,000 P979,000 Total cost "Assembly labor consists of hourly production workers. **Manufacturing overhead is applied to products on a DL basis FOH 50% DLH VOH 100% DLн мон 150% DLH ***General and Admin overhead is applied at 10% of the total costs of materials, labor and manufacturing overhead. Was the analysis of three departments correct? Should the company continue to buy the product from outside supplier or manufacture its own? Explain and show computation.
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 32P: Paladin Company manufactures plain-paper fax machines in a small factory in Minnesota. Sales have...
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Transcribed Image Text:Martin's Company has purchased 20,000 pumps annually from Andres Company. Due to price increasing
and it has reached P40 per unit last year, Martin is considering to manufacture the pump in their
facilities. The accounting, manufacturing and engineering departments have prepared a report for
management that includes the following estimate for an assembly run of 20,000 pumps. Additional
production employees would be hired to manufacture the pumps but no additional equipment, space,
or supervision would be needed.
The report states that the total costs for 20,000 units are estimated at P979,000 or P48.95. The current
purchase price is P40 per unit, so the report recommends continued to purchase of the product.
DM
P140,000
*DL
300,000
**MOH
450,000
*General and Admin OH
450,000
Total cost
P979,000
*Assembly labor consists of hourly production workers.
**Manufacturing overhead is applied to products on a DL basis
FOH
50% DLH
VOH 100% DLH
мон 150% DLH
***General and Admin overhead is applied at 10% of the total costs of materials, labor and
manufacturing overhead.
Was the analysis of three departments correct? Should the company continue to buy the product from
outside supplier or manufacture its own? Explain and show computation.
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