Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Schopp Inc. has been manufacturing its own shades for its table lamps. The company is currently operating at 100% of capacity, and variable manufacturing overhead
Schopp Inc. has been manufacturing its own shades for its table lamps. The company is currently operating at 100% of capacity, and variable manufacturing overhead is charged to production at the rate of 70% of direct labor cost. The direct materials and direct labor cost per unit to make the lamp shades are SR4 and SR5, respectively. Normal production is 30,000 table lamps per year. A supplier offers to make the lamp shades at a price of SR12.75 per unit. If Schopp Inc. accepts the supplier's offer, all variable manufacturing costs will be eliminated, but the SR45,000 of fixed manufacturing overhead currently being charged to the lamp shades will have to be absorbed by other products. Instructions (a) Prepare the incremental analysis for the decision to make or buy the lamp shades. Make Buy Net Income Increase (b) Should Schopp Inc. buy the lamp shades? Show your calculations above. (c) Would your answer be different in (b) if the productive capacity released by not making the lamp shades could be used to produce income of SR25,000
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