Question 4 (10 marks) Stars Ltd. is a company manufacturing and selling sports equipment and sportswear. Based on the company's estimation, its production capacity is 10,000 surfboards per year using the current facilities. Each surfboard is priced at $200. The cost information below is based on its recent production and sales of 7,000 surfboards. Fixed costs are reported for the entire company and variable costs are reported at the unit level: Direct materials coste $50 Direct labor cost $30 Variable manufacturing overhead $20 Fixed manufacturing overhead $210,000 Variable selling expenses $100 Fixed selling expenses $140,000 Required questions: Stars Ltd. observes the increasing demand for its surfboards and wonders whether it can outsource all its production of 7,000 units to an outside manufacturer. The most attractive offer from an outside manufactpirer could reduce Stars Ltd. 's fixed manufacturing overhead by 80%. For Stars Ltd., what is the acceptable quotation from this outside manufacturer? Please offer explanation for every step of your answer. Stars Ltd.'s another segment producing hiking bags, however, is operating at a big loss based on the income statement prepared for the hiking bag segment. The manager decided to discontinue the production of hiking bags, but the accountant suggested they should continue to make hiking bags. Explain why would the accountant make this suggestion? Question 4 (10 marks) Stars Ltd. is a company manufacturing and selling sports equipment and sportswear. Based on the company's estimation, its production capacity is 10,000 surfboards per year using the current facilities. Each surfboard is priced at $200. The cost information below is based on its recent production and sales of 7,000 surfboards. Fixed costs are reported for the entire company and variable costs are reported at the unit level: Direct materials cost $50 Direct labor coste $30 Variable manufacturing overhead $200 Fixed manufacturing overhead $210,000 Variable selling expenses $10 Fixed selling expenses $140,000 Required questions: Stars Ltd. observes the increasing demand for its surfboards and wonders whether it can outsource all its production of 7,000 units to an outside manufacturer. The most attractive offer from an outside manufacturer could reduce Stars Ltd.'s fixed manufacturing overhead by 80%. For Stars Ltd., what is the acceptable quotation from this outside manufacturer? Please offer explanation for every step of your answer. Stars Ltd.'s another segment producing hiking bags, however, is operating at a big loss based on the income I statement prepared for the hiking bag segment. The manager decided to discontinue the production of hiking bags, but the accountant suggested they should continue to make hiking bags. Explain why would the accountant make this suggestion
