Question
Hawk Skateboard Mfg. Inc. (Hawk) manufactures skateboards. Its cost per unit to make 3,500 decks (a part of the skateboard) is as follows: Direct materials
Hawk Skateboard Mfg. Inc. (Hawk) manufactures skateboards. Its cost per unit to make 3,500 decks (a part of the skateboard) is as follows: Direct materials $9.20 Direct labour 1.77 Variable manufacturing overhead 1.30 Fixed manufacturing overhead 3.80 Total manufacturing costs $16.07 Suppose Reynolds Inc. (Reynolds) offers to sell decks to Hawk for $15 each. Hawk will pay $1.50 per unit to transport the decks to its manufacturing plant, where it will add its own logo at a cost of $0.80 per deck. Hawks accountants predict that purchasing the decks from Reynolds will enable the company to avoid $5,500 of fixed overhead. Required: Determine if Hawk should buy the decks or continue to make them. Support your answer with a differential analysis of the costs of each option.
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