(a1) SHOW SOLUTION LINK TO TEXT (a2) SHOW SOLUTION LINK TO TEXT (b1) Henry Horti
ID: 458188 • Letter: #
Question
(a1)
SHOW SOLUTION
LINK TO TEXT
(a2)
SHOW SOLUTION
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(b1)
Henry Horticultural, Ltd., is a leading producer of greenhouse irrigation systems. Currently, the company manufactures the timer unit used in each of its systems. Based on an annual production of 40,650 timers, the company has calculated the following unit costs. Direct fixed costs include supervisory and clerical salaries and equipment depreciation. Direct materials $12 Direct labor 7 Variable manufacturing overhead 3 Direct fixed manufacturing overhead 8 (30% salaries, 70% depreciation) Allocated fixed manufacturing overhead 5 Total unit cost $35Talbert Time Pieces has offered to provide the timer units to Henry at a price of $35 per unit. If Henry accepts the offer, the current timer unit supervisory and clerical staff will be laid off.
Explanation / Answer
A1) Total cost to make or buy = $35 * 40,650 = $1, 422,750
A2) Yes. It can go ahead with the offer, as costs are same for the in house manufacturing.
It can sell the existing equipment and machineries, which will save them from the depreciation loss, year after year, and the maintenance cost for each
A3)
Sell = 94,270 * 12 = $1,131,240
Cost (new line) = 94,270 * 9 = $848,430
Total cost = 848,430 + 1, 422,750 = $2,271,180
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