Question
Janes Jars Ltd. currently makes one type of decorative jar which it sells to other companies for packaging. Current output is 100,000 jars per year.
Janes Jars Ltd. currently makes one type of decorative jar which it sells to other companies for packaging. Current output is 100,000 jars per year. An outside supplier has offered to supply all the needed decorative jars for $.45 per jar. A cost analysis revealed the following unit costs for the decorative jars:
Direct materials $.25
Direct labor .03
Other variable manufacturing costs .10
Fixed manufacturing costs .12
Fixed non-manufacturing costs .30
Total cost per jar $.80
Problem 6 (4 marks) Janes Jars Ltd. currently makes one type of decorative jar which it sells to other companies for packaging. Current output is 100,000 jars per year. An outside supplier has offered to supply all the needed decorative jars for $.45 per jar. A cost analysis revealed the following unit costs for the decorative jars: Direct materials $.25 Direct labor .03 Other variable manufacturing costs .10 Fixed manufacturing costs .12 Fixed non-manufacturing costs .30 Total cost per jar $.80 Required:
a. (3 marks) Should the company accept the offer? b.
b.(2 marks) What additional issues might the senior management consider?
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