Refer to the information in Exercise 21.18 in answering the following requirements; there is no connection between the situations. 

Data From Exercise 21.18

Salamanca SA manufactures filing cabinets in two operations: machining and finishing. Additional information is as follows.

Each cabinet sells for €72 and has direct materials costs of €32 incurred at the start of the machining operation. Salamanca has no other variable costs. Salamanca can sell whatever output it produces. The following requirements refer only to the preceding data; there is no connection between the situations.

Required 

1. An outside contractor offers to do the finishing operation for 12,000 units at €10 per unit, double the €5 per unit that it costs Salamanca to do the finishing in-house. Should Salamanca accept the subcontractor’s offer? 

2. The Hunt Corporation offers to machine 4000 units at €4 per unit, half the €8 per unit that it costs Salamanca to do the machining in-house. Should Salamanca accept the subcontractor’s offer?

Transcribed Image Text:

Machining Finishing 80 000 units 80 000 units Annual capacity Annual production Fixed operating costs (excluding direct materials) Fixed operating costs per unit produced (€640 000 + 80 000; €400 000 + 80 000) 100 000 units 80 000 units €640 000 €400 000 €8 per unit €5 per unit