XYZ makes an electric skateboard-like scooter that is small enough to fit into a school locker. Production for the year 2014 is budgeted at 20,000 scooters. Currently, XYZ makes all of the parts for manufacturing the scooter. However, an outside source has offered to make and sell XYZ 20,000 steering columns for P90 each. The controller of XYZ has researched the cost to produce the steering column in house and has found the following cost structure: Variable costs: Direct materials P48 Direct labor 23 Overhead 16 Total variable cost per unit P87 Fixed costs of P40,000 represents depreciation on special equipment designed to make the steering columns. The equipment cannot be used for any other purpose. The supervisory salary of P70,000 is for the supervisor of the assembly line where the steering columns are made. The supervisor is not involved with the manufacture of any other parts. Therefore, his salary can be eliminated if the steering columns are purchased. The other fixed costs of P2,000 are allocated costs and cannot be eliminated. 1. Determine the additional profit or (loss) of buying from the outside supplier. 2. Determine the minimum number of units wherein it would be worthwhile for XYZ to make the units.

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter10: Short-term Decision Making

Section: Chapter Questions

Problem 5EA: Shelby Industries has a capacity to produce 45.000 oak shelves per year and is currently selling...

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XYZ makes an electric skateboard-like scooter that is small enough to fit into a school locker. Production for the year 2014 is budgeted at 20,000 scooters. Currently, XYZ makes all of the parts for manufacturing the scooter. However, an outside source has offered to make and sell XYZ 20,000 steering columns for P90 each. The controller of XYZ has researched the cost to produce the steering column in house and has found the following cost structure:

Variable costs:
Direct materials	P48
Direct labor	23
Overhead	16
Total variable cost per unit	P87

Fixed costs of P40,000 represents depreciation on special equipment designed to make the steering columns. The equipment cannot be used for any other purpose. The supervisory salary of P70,000 is for the supervisor of the assembly line where the steering columns are made. The supervisor is not involved with the manufacture of any other parts. Therefore, his salary can be eliminated if the steering columns are purchased. The other fixed costs of P2,000 are allocated costs and cannot be eliminated.

1. Determine the additional profit or (loss) of buying from the outside supplier.

2. Determine the minimum number of units wherein it would be worthwhile for XYZ to make the units.

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