Takumi Computers currently purchases for $32 each keyboard it uses in the 50,000
ID: 2415795 • Letter: T
Question
Takumi Computers currently purchases for $32 each keyboard it uses in the 50,000 computers it makes and sell annually. Each computer uses one keyboard. The company has idle capacity and is considering whether to make the keyboards that it needs. Takumi estimates that materials and Labor cost for making keyboards will be $20 each. In addition, supervisory salaries. Rent, and other manufacturing costs would be $800,000. Allocated facility level costs would amount to $140,000.
Determine the change in net income that Takumi would experience if it decides to make the keyboards.
Discuss the qualitative factors that Takumi should consider.
Explanation / Answer
Cost of buying the computers = $32 * 50,000 = $1,600,000
Cost of making 50,000 key boards
Cost of material and labor $20 * 50,000 = $1,000,000
Allocated facility level costs = $140,000
Total costs $1,140,000
net income will increase by (1,600,000 - 1,140,000) $4,60,000.
Takumi should consider that fixed cost of $800,000 is there irrespectible of the idle capacity being utilised.
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