XYZ Co . produces all the parts it uses to manufacture its products. The following costs per
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Question:
XYZ Co produces all the parts it uses to manufacture its products. The following costs per unit were incurred in manufacturing units of Part B:
Direct materials $
Direct labour
Variable overhead
Fixed overhead
A supplier has offered to sell units of part B to XYZ Co for $ per unit. If XYZ Co accepts the offer, fixed overhead could be reduced by per unit. In addition, the facilities used to produce B could be used to manufacture Part C for which XYZ Co has been unable to meet current demand. Sales of C should increase by The most recent income statement for part C is as follows:
Sales $
Variable costs
Fixed costs
Operating income
Required:
a Calculate the change in XYZ Cos incremental income if the supplier's offer is accepted.
b Should the supplier's offer be accepted?
c What qualitative factors should be considered?
Related Book For
Cost Management Measuring Monitoring And Motivating Performance
ISBN: 9781118168875
2nd Canadian Edition
Authors: Leslie G. Eldenburg, Susan Wolcott, Liang Hsuan Chen, Gail Cook
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