Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Easylife Electrical Goods manufactures a range of washing machines, clothes dryers and dishwashers. One component is common to the product range; every product has the

image text in transcribed
image text in transcribed
Easylife Electrical Goods manufactures a range of washing machines, clothes dryers and dishwashers. One component is common to the product range; every product has the same electric motor which is manufactured in the Motor Division of Easylife. Ten thousand motors are produced annually. These electric motors are transferred to the Assembly Division at full cost of production of $Tr'5, calculated as follows: Direct materials $25 Direct labour: 2 hrs @ MS 30 Factory overhead Q 515 The factory overhead is allocated using direct labour hours as the cost driver. Budgeted annual tted overhead for the Motor Division amounts to $15!} , consisting of $100 {l incurred by the Motor Division plus $50 [tilt] of general plant-wide tted charges. which are allocated to each division. Management of Easylife have been approached by a salesman from the Hiroshima Electric Company. The salesman has offered to supply Hiroshima electric motors of equivalent performance for $72 each1 in sufficient numbers to satisfy Easylife's requirements. Required: {a} Should Easylife continue to manufacture its own electric motors or purchase them from Hiroshima and hence close down the Motor Division? Show the calculations. [It] marks} {b} Suppose that Hiroshima malte an alternative ofli'er to sell the electric motors to Easylife for $65 each, but there would be no warranty on the motors. Consequently, in the event of a motor failure in the iii-month warranty period for its products, Easylife would have to purchase a replacement from Hiroshima at a reduced price of $50. Easylife estimates that 5% of motors purchased may fail during the warranty period. Calculate the annual net advantage or disadvantage to Easylife fmm accepting this offer. State any qualitative factors which should be taken into account when considering such an offer. [It] marks}

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Managerial Decision Modeling Business Analytics With Spreadsheet

Authors: Nagraj Balakrishnan, Barry Render, Ralph Stair, Charles Munson

4th Edition

1501515101, 978-1501515101

More Books

Students also viewed these Accounting questions

Question

Distinguish between operating mergers and financial mergers.

Answered: 1 week ago

Question

Please help!! I will up vote!

Answered: 1 week ago