Current-Control Inc. manufactures a variety of electrical switches. The company is currently manufacturing all of its own
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Question:
Current-Control Inc. manufactures a variety of electrical switches. The company is currently manufacturing all of its own component parts. An outside suppliers has offered to sell a switch to Current-Control for $32 per unit. To evaluate this offer, Current-Control has gathered the following information relating to its own cost of producing the switch internally:
Per Unit | 12,000 Units per Year | |
Direct materials | $12 | $144,000 |
Direct labour | 10 | 120,000 |
Variable manufacturing overhead | 3 | 36,000 |
Fixed manufacturing overhead, traceable* | 2 | 24,000 |
Fixed manufacturing overhead, common, but allocated | 16 | 192,000 |
Total Cost | $49 | $588,000 |
*Supervisory salaries, can be avoided if the switches are purchased.
Required:
Assuming that the company has no alternative use for the facilities now being used to produce the switch, should the outside supplier's offer be accepted? show all computations.
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