Refer to the information in Exercise 21.18 in answering the following requirements; there is no connection between the situations.

Required

1 An outside contractor offers to do the finishing operation for 12 000 units at €10 per unit, double the €5 per unit that it costs Salamanca to do the finishing in-house. Should Salamanca accept the subcontractor’s offer?

2 The Hunt Corporation offers to machine 4000 units at €4 per unit, half the €8 per unit that it costs Salamanca to do the machining in-house. Should Salamanca accept the subcontractor’s offer?

Exercise 21.18

Salamanca SA manufactures filing cabinets in two operations: machining and finishing. Additional information is as follows.

Each cabinet sells for €72 and has direct materials costs of €32 incurred at the start of the machining operation. Salamanca has no other variable costs. Salamanca can sell whatever output it produces. The following requirements refer only to the preceding data; there is no connection between the situations.

Transcribed Image Text:

Annual capacity Annual production Fixed operating costs (excluding direct materials) Fixed operating costs per unit produced (640 000 80 000; 400 00080 000) Machining 100 000 units 80 000 units 640 000 Finishing 80 000 units 80 000 units 400 000 8 per unit 5 per unit