Climate-Control. Inc.. manufactures a variety of heating and air-conditioning un

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 $30 per unit. To evaluate this offer, Climate-Control. Inc.. has gathered the following information relating to its own cost of producing the thermostat internally: 40% supervisory salaries: 60% depreciation of special equipment (no resale value). 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. It Should the outside supplier's offer be accepted? 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 $ 105,200 Should Climate-Control, Inc.. accept the offer to buy the thermostats from the outside supplier for $30 each? Accept Reject

Explanation / Answer

Soution.

1a.

If company make itself than cost of thermostate is = 15,200 x $40 = $608,000.

And if company buy thermostate from outside supplier than cost is.........

Parchesing cost                                                                  = $30 per unit

Fixed manufecturing overhead traceable                         = $5 per unit

Fixed manufecturing overhead common but allocated   = $13 per unit

Total cost                                                                              = $48 per unit

Anual cost    15,200 x $48                                                 = $729,600

1b. No, This should be rejected.

2a.

If company make itself than cost of thermostate is = 15,200 x $40 = $608,000.

And if company buy thermostate from outside supplier than cost is.........

Parchesing cost                                                                  = $30 per unit

Total cost                                                                              = $30 per unit

Anual cost    15,200 x $30                                                 = $456,000

Less :- New product segment margin                              = $105,200

Balance cost                                                                       = $350,800

2b. YES , This can be accepted.

Balance cost                                                                       = $

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