Question
QUESTION 3 The Ostrich Corporation (Ostrich) manufactures mobile phones. Ostrich manufactures 8,000 phones in 40 batches of 200 each. Ostrich expects to produce the same
QUESTION 3
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The Ostrich Corporation (Ostrich) manufactures mobile phones. Ostrich manufactures 8,000 phones in 40 batches of 200 each. Ostrich expects to produce the same number of phones in 2020. Ostrich reports the following cost information about the costs of making mobile phones in 2019.
Direct materials per phone $180
Direct manufacturing labour cost per phone $50
Variable MOH per batch $1,600
Avoidable Fixed MOH $320,000
Unavoidable Fixed MOH $800,000
At the beginning of 2020, the Emu Corporation (Emu) approaches the Ostrich and offers to sell them 8,000 phones that are identical in quality to the mobiles that they make for $295 per mobile on whatever delivery schedule Ostrich requires.
On financial considerations alone, which of the following statement is correct?
a. Ostrich can save $224,000 by outsourcing the mobile production to Emu.
b. Ostrich is better off by $176,000 to make the phone themselves.
c. Ostrich can save $560,000 by outsourcing the mobile production to Emu.
d. Ostrich is better off by $136,000 to make the phone themselves.
e. Ostrich can save $558,400 by outsourcing the mobile production to Emu.
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