Smith Company manufactures widgets. Newman Company has approached Smith with a p

Question

Smith Company manufactures widgets. Newman Company has approached Smith with a proposal to sell the company one of the components used to make widgets at a price of $100,000 for 50,000 units. Smith is currently making these components in its own factory. The following costs are associated with this part of the process when 50,000 units are produced: Direct material $44,000 Direct labor 20,000 Manufacturing overhead 60,000 Total $124,000 The manufacturing overhead consists of $32,000 of costs that will be eliminated if the components are no longer produced by Smith. The remaining manufacturing overhead will continue whether or not Smith makes the components. Answer the following questions from Smith's point of view.

Explanation / Answer

costs on producing widgets = $124000 reduction in costs if purchased = $124000 - $32000 = $92000 costs on accepting offer = $92,000 + $100,000(purchase price) = $1,92000 costs on not accepting offer = $1,24,000 Hence,should not accept the off

Related Questions

Navigate

• Browse (All)
• Browse S
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.