Hitec Co. manufactures a variety of batteries for use in remote controller. An outside supplier has...

 

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Hitec Co. manufactures a variety of batteries for use in remote controller. An outside supplier has offered to sell one type of battery (S77) to Hit for a cost of $17 per unit. To evaluate this offer, Hitec Co. has gathered the following information relating to its own cost of producing the batter internally: Direct materials Direct labor Variable manufacturing overhead Supervisor's salary Depreciation of special equipment Fixed manufacturing overhead, allocated Total cost Per unit $5.00 4.00 1.50 1.00 5,000 units per year $25,000 20,000 7,500 5,000 10,000 22,500 2.00 4.50 18.00 However, Hitec Co. has determined that one-third of the fixed manufacturing overhead allocated to $77 battery would continue even if $77 we purchased from the outside supplier. Required: 90,000 (4+1=5) i. Assuming the company has no alternative use for the facilities that are now being used to produce the battery (S77) what would b financial advantage (disadvantage) of buying 5,000 batteries from the outside supplier? Should the outside supplier's offer be accepted? ii. Suppose that if the battery (S77) were purchased, Hitec Co. could use the freed capacity to launch a new product. The segment margin of the new product would be $60,000 per year. Given this new assumption, what would be financial advantage (disadvantage) of buying 5,000 batteries from the outside supplier? Should the outside supplier's offer be accepted? Hitec Co. manufactures a variety of batteries for use in remote controller. An outside supplier has offered to sell one type of battery (S77) to Hit for a cost of $17 per unit. To evaluate this offer, Hitec Co. has gathered the following information relating to its own cost of producing the batter internally: Direct materials Direct labor Variable manufacturing overhead Supervisor's salary Depreciation of special equipment Fixed manufacturing overhead, allocated Total cost Per unit $5.00 4.00 1.50 1.00 5,000 units per year $25,000 20,000 7,500 5,000 10,000 22,500 2.00 4.50 18.00 However, Hitec Co. has determined that one-third of the fixed manufacturing overhead allocated to $77 battery would continue even if $77 we purchased from the outside supplier. Required: 90,000 (4+1=5) i. Assuming the company has no alternative use for the facilities that are now being used to produce the battery (S77) what would b financial advantage (disadvantage) of buying 5,000 batteries from the outside supplier? Should the outside supplier's offer be accepted? ii. Suppose that if the battery (S77) were purchased, Hitec Co. could use the freed capacity to launch a new product. The segment margin of the new product would be $60,000 per year. Given this new assumption, what would be financial advantage (disadvantage) of buying 5,000 batteries from the outside supplier? Should the outside supplier's offer be accepted?

Answer rating: 100% (QA)

Answer1 Financial Disadvantage of Buying 5000 Batteries Suppliers offer should be rejected Calculati... View the full answer