Schopp Inc. has been manufacturing its own shades for its table lamps. The compa
ID: 2446382 • Letter: S
Question
Schopp Inc. has been manufacturing its own shades for its table lamps. The company is currently operating at 100% of capacity, and variable manufacturing overhead is charged to production at the rate of 70% of direct labor cost. The direct materials and direct labor cost per unit to make the lamp shades are $4 and $5, respectively. Normal production is 30,000 table lamps per year.
A supplier offers to make the lamp shades at a price of $12.75 per unit. If Schopp Inc. accepts the supplier’s offer, all variable manufacturing costs will be eliminated, but the $45,000 of fixed manufacturing overhead currently being charged to the lamp shades will have to be absorbed by other products.
Should Schopp Inc. buy the lamp shades?
Would your answer be different in (b) if the productive capacity released by not making the lamp shades could be used to produce income of $25,000?
(Round all entries to whole dollar amounts)
Schopp Inc. has been manufacturing its own shades for its table lamps. The company is currently operating at 100% of capacity, and variable manufacturing overhead is charged to production at the rate of 70% of direct labor cost. The direct materials and direct labor cost per unit to make the lamp shades are $4 and $5, respectively. Normal production is 30,000 table lamps per year.
A supplier offers to make the lamp shades at a price of $12.75 per unit. If Schopp Inc. accepts the supplier’s offer, all variable manufacturing costs will be eliminated, but the $45,000 of fixed manufacturing overhead currently being charged to the lamp shades will have to be absorbed by other products.
Explanation / Answer
NO,Lamp shades should not be purchased as it results in incremntal cost of 7500
b)Incrmental Revenue /(cost = 25000 - 7500 = 17500
yes,as net income will increase by 17500
make Buy net Increase /(decrease) DM 120000 (4*30000) - (120000) DL 150000 (5*30000) - (150000) Variable overhead 105000 (3.5*30000) - (105000) Fixed manufacturing cost 45000 45000 - Purchase price - 382500 382500 Total annual cost 420000 427500 7500Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.