Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Kramer Company makes 4,000 units per year of a part called an axial tap used in one of its products. Data concerning the unit costs
Kramer Company makes 4,000 units per year of a part called an axial tap used in one of its products. Data concerning the unit costs of the axial tap follow:
Direct Materials | $ 35.00 |
Direct Labour | $ 10.00 |
Variable Overhead | $ 8.00 |
Fixed Overhead | $ 20.00 |
Total Manufacturing Cost per Unit | $ 73.00 |
An outside supplier has offered to sell Kramer all of the axial taps it requires. If Kramer decides to discontinue making the taps, 40% of the fixed overhead costs could be avoided. Assume that direct labour is variable.
Required:
- Assume Kramer Company has no alternative use for the facilities. If an outside supplier offers to sell Kramer the axial taps for $65 each, should the company accept the offer? Support your answer with calculations.
- Assume that Kramer could use the facilities to expand production for another product that would yield an additional contribution margin of $80,000 annually. What is the maximum price Kramer should be willing to pay the outside supplier for the taps?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started