Show Time Company currently manufactures the hands it uses in the assembly of grandfather clocks. Cost estimates to make each set of hands follow.

Required:
a Prepare an analysis to answer each of the following independent questions.
i Assume that all variable costs are avoidable and that the company needs 3000 sets of hands annually. How much of the fixed overhead must be avoidable in order for the company to prefer to buy the sets from an outside supplier at \(\$ 17\) per set instead of continuing to make them?
ii Assume that all variable costs are avoidable, that the company needs 3000 sets of hands annually, and that only \(\$ 6000\) of fixed costs are avoidable. Below what purchase price per set of hands would the company prefer to buy the components from an outside supplier instead of continuing to make them?
iii Assume that all variable costs are avoidable, that \(\$ 3000\) of fixed overhead is avoidable, and that the purchase price of a set of hands is \(\$ 24\). Below what number of sets needed, would the company prefer to buy the sets of hands from an outside supplier instead of continuing to make them?
b Suppose fixed overhead costs include the following:

List the fixed costs that you think Show Time could avoid (at least partially) if it purchased sets of hands. What are your reasons for including each of these costs on the list?

Transcribed Image Text:

Direct materials Direct labour Variable overhead Fixed overhead $8.00 per set 4.00 per set 2.00 per set 13 000.00 per year