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Lee Company makes 5,000 units per year of a part called an axial tap for use in one of its products. Data concerning the unit
Lee Company makes 5,000 units per year of a part called an axial tap for use in one of its products. Data concerning the unit production costs of the axial tap follow:
An outside supplier has offered to sell Lee Company all of the axial taps it requires. If Lee Company decided to discontinue making the axial taps, 50% of the above fixed manufacturing overhead costs could be avoided. Assume that direct labour is a variable cost. Required: PLEASE SHOW ALL OF YOUR CALCULATIONS FOR FULL MARKS. a) Assume Lee Company 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 $64 each, should Lee Company accept the offer? Fully support your answer with appropriate calculations. b) Assume that Lee Company could use the facilities presently devoted to production of the axial taps to expand production of another product that would yield an additional contribution margin of $75,000 annually. What is the maximum price Lee Company should be willing to pay the outside supplier for axial taps? For the toolbar, press ALT+F10 (PC) or ALT+FN+F10 (Mac). $25 Direct Materials $15 Direct Labour $13 Variable Manufacturing Overhead $28 Fixed Manufacturing Overhead $81 Total Manufacturing Cost per Unit
Lee Company makes 5,000 units per year of a part called an axial tap for use in one of its products. Data
concerning the unit production costs of the axial tap follow:
![image text in transcribed](https://s3.amazonaws.com/si.experts.images/answers/2024/07/668fee2332fb3_642668fee22d27bd.jpg)
An outside supplier has offered to sell Lee Company all of the axial taps it requires. If Lee Company decided to discontinue
making the axial taps, 50% of the above fixed manufacturing overhead costs could be avoided. Assume that direct labour is a
variable cost.
Required: PLEASE SHOW ALL OF YOUR CALCULATIONS FOR FULL MARKS.
a) Assume Lee Company 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 $64 each, should Lee Company accept the offer? Fully support
your answer with appropriate calculations.
b) Assume that Lee Company could use the facilities presently devoted to production of the axial taps to expand
production of another product that would yield an additional contribution margin of $75,000 annually. What is the maximum
price Lee Company should be willing to pay the outside supplier for axial taps?
For the toolbar, press ALT+F10 (PC) or ALT+FN+F10 (Mac).
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