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Elves Inc. makes 24,000 units per year of a part called an axial tap for use in one of its toys. Data concerning the unit
Elves Inc. makes 24,000 units per year of a part called an axial tap for use in one of its toys. Data concerning the unit production costs of the axial tap follow:
Direct Materials $15
Direct Labour 6
Variable Manufacturing Overhead 3
Fixed Manufacturing Overhead ($4 general company
overhead, $2 depreciation, and $3 direct supervision) 9
Total Cost per unit 33
An outside supplier has offered to sell Elves Inc. all of the axial taps it requires.
Required:
- Assume Elves Inc. has no alternative use for the facilities presently devoted to production of the axial taps. If the outside supplier offers to sell the axial taps for $29 each, should Elves Inc. accept the offer? Support your answer with appropriate calculations. (6 marks)
- Assume that Elves Inc. could use the facilities presently devoted to production of the axial taps to expand production of another toy part that would yield an
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