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Festival of Lights Ltd. owns a factory that produces 12,000 lamps per season that it uses for the production of colourful diyas, Festival of Lights
Festival of Lights Ltd. owns a factory that produces 12,000 lamps per season that it uses for the production of colourful diyas, Festival of Lights Ltd. was recently approached by an outside supplier that offered to produce lamps at $30 per unit. Purchasing from an outside supplier will give Festival of Lights Ltd. unused space, which can be rented out for $190,000. Festival of Lights Ltd. has provided the following information about the costs associated with producing its lamps. Per unit costs Costs at production of 12,000 lamps Direct materials $5.00 $60,000 Direct labour $6.00 $72,000 Variable manufacturing overhead $3.00 $36,000 Allocated common Fixed $4.00 manufacturing overhead $48,000 Total $18.00 $216,000 Should Festival of Lights Ltd. purchase the lamps for its diyas from the outside supplier? No, profits would decrease by $2,000 if the outside supplier's offer is accepted No, profits would increase by $46,000 if the outside supplier's offer is accepted Yes, profits would increase by $46,000 if the outside supplier's offer is accepted Yes, profits would increase by $2,000 if the outside supplier's offer is accepted
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