Climate-Control, Inc., manufactures a variety of heating and air-conditioning un
ID: 2372246 • Letter: C
Question
Climate-Control, Inc., manufactures a variety of heating and air-conditioning units. The company is currently manufacturing all of its own component parts. An outside supplier has offered to sell a thermostat to Climate-Control for $31 per unit. To evaluate this offer, Climate-Control, Inc., has gathered the following information relating to its own cost of producing the thermostat internally:
Assuming that the company has no alternative use for the facilities now being used to produce the thermostat, compute the total cost of making and buying the parts. (Round your Fixed manufacturing overhead per unit rate to two decimals and your final answers to the nearest dollar amount.Omit the "$" sign in your response.)
Suppose that if the thermostats were purchased, Climate-Control, Inc., could use the freed capacity to launch a new product. The segment margin of the new product would be $116,360 per year. Compute the total cost of making and buying the parts. (Round your Fixed manufacturing overhead per unit rate to two decimals and your final answers to the nearest dollar amount. Omit the "$" sign in your response.)
Climate-Control, Inc., manufactures a variety of heating and air-conditioning units. The company is currently manufacturing all of its own component parts. An outside supplier has offered to sell a thermostat to Climate-Control for $31 per unit. To evaluate this offer, Climate-Control, Inc., has gathered the following information relating to its own cost of producing the thermostat internally:
Explanation / Answer
15,300
Per Units Per
2a Unit Year
Direct materials $13 $74,500
Direct labor 7 104,300
Variable manufacturing overhead 2 29,800
Fixed manufacturing overhead, traceable *** 5 74,500
Fixed mfg. overhead, common, and allocated 9 134,100
Total cost $28 $417,200
*** 40% supervisory salaries; 60% depreciation of special equipment (no resale value).
Make Buy
Per Per Per Per
14,300 units Unit Year Unit Year
Direct materials $5.00 $74,500.00 47
Direct labor $7.00 $104,300.00
Variable manufacturing overhead $2.00 $29,800.00
Fixed manufacturing overhead, traceable and avoidable $5.00 $74,500.00
Fixed mfg. overhead, common, and allocated $9.00 $134,100.00
Total cost (answer 1a) $28.00 $417,200.00 $18.00 $257,400.00
Segment margin of $42800 $42,800.00 $0.00
Total New cost (answer 2a) $460,000.00 $257,400.00
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