Freeze Refrigerator Company purchases ice makers and installs them in its products. The ice makers cost $138
Question:
Cost estimates have been prepared under the assumption that the company could make the product itself. Direct materials would cost $100.80 per 12 ice makers. Direct labor required would be 10 minutes per ice maker at a labor rate of $18.00 per hour. Variable overhead would be $4.60 per ice maker. Fixed overhead, which would be incurred under either decision alternative, would be $32,420 a year for depreciation and $234,000 a year for other costs. Production and usage are estimated at 75,000 ice makers a year. (Assume that any idle equipment cannot be used for any other purpose.)
Required
1. Prepare an incremental analysis to determine whether the ice makers should be made within the company or purchased from the outside supplier at the higher price.
2. Compute the variable unit cost to (a) make one ice maker and (b) buy one ice maker.
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Related Book For
Principles of Accounting
ISBN: 978-1133626985
12th edition
Authors: Belverd E. Needles, Marian Powers and Susan V. Crosson
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