Selma Corporation uses Part PB7 in one of its products. The company's Accounting Department reports the following costs to produce 7,000 units of the PB7 that are needed every year. Direct materials $7.00 per unit Direct labour $6.00 per unit Variable overhead $5.60 per unit Supervisor's salary $4.70 per unit Depreciation of special equipment $1.50 per unit Allocated general overhead $5.40 per unit An outside supplier has offered to make the part and sell it to the company for $28.30 each. If this offer is accepted, the supervisor's salary and all of the variable costs, including direct labor, can be avoided. The special equipment used to make the part was purchased many years ago and has no salvage value or other use. The allocated general overhead represents fixed costs of the entire company. If the outside supplier's offer were accepted, only $9,000 of these allocated general overhead costs would be avoided. Required: Should Selma Corporation buy PB7 from the supplier or continue producing the part internally? Shows the effect on the company's total net operating income by comparing both alternatives
Selma Corporation uses Part PB7 in one of its products. The company's Accounting Department reports the following costs to produce 7,000 units of the PB7 that are needed every year. Direct materials $7.00 per unit Direct labour $6.00 per unit Variable overhead $5.60 per unit Supervisor's salary $4.70 per unit Depreciation of special equipment $1.50 per unit Allocated general overhead $5.40 per unit An outside supplier has offered to make the part and sell it to the company for $28.30 each. If this offer is accepted, the supervisor's salary and all of the variable costs, including direct labor, can be avoided. The special equipment used to make the part was purchased many years ago and has no salvage value or other use. The allocated general overhead represents fixed costs of the entire company. If the outside supplier's offer were accepted, only $9,000 of these allocated general overhead costs would be avoided. Required: Should Selma Corporation buy PB7 from the supplier or continue producing the part internally? Shows the effect on the company's total net operating income by comparing both alternatives
Chapter10: Short-term Decision Making
Section: Chapter Questions
Problem 7PB: Remarkable Enterprises requires four units of part A for every unit of Al that it produces....
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Selma Corporation uses Part PB7 in one of its products. The company's Accounting Department reports the following costs to produce 7,000 units of the PB7 that are needed every year.
Direct materials $7.00 per unit
Direct labour $6.00 per unit
Variable overhead $5.60 per unit
Supervisor's salary $4.70 per unit
Depreciation of special equipment $1.50 per unit
Allocated general overhead $5.40 per unit
An outside supplier has offered to make the part and sell it to the company for $28.30 each. If this offer is accepted, the supervisor's salary and all of the variable costs, including direct labor, can be avoided. The special equipment used to make the part was purchased many years ago and has no salvage value or other use. The allocated general overhead represents fixed costs of the entire company. If the outside supplier's offer were accepted, only $9,000 of these allocated general overhead costs would be avoided.
Required:
Should Selma Corporation buy PB7 from the supplier or continue producing the part internally? Shows the effect on the company's total net operating income by comparing both alternatives.
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