Case #3 Lofy Co. manufactures 48,000 units of a component each year that Lofy Co. uses...

 

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Case #3 Lofy Co. manufactures 48,000 units of a component each year that Lofy Co. uses in the production of one of its product lines. Relevant manufacturing costs for those units are as follows: Direct materials $90,000 Direct labour $144,000 Variable overhead $54,000 Fixed overhead $72,000 Total costs $360,000 Recently, management at Lofy Co. has received an offer from a potential supplier that is willing to sell the components to Lofy Co. for $15.30 per unit. If Lofy Co. accepts the offer, management could rent its unused manufacturing facilities for $54,000. Required: (A) Should Lofy Co. accept the potential supplier's offer? How much would Lofy Co.'s income increase or decrease by accepting the order? (B) What qualitative factors should companies, such as Lofy Co., consider prior to accepting/declining this type of offer from a potential supplier? Case #3 Lofy Co. manufactures 48,000 units of a component each year that Lofy Co. uses in the production of one of its product lines. Relevant manufacturing costs for those units are as follows: Direct materials $90,000 Direct labour $144,000 Variable overhead $54,000 Fixed overhead $72,000 Total costs $360,000 Recently, management at Lofy Co. has received an offer from a potential supplier that is willing to sell the components to Lofy Co. for $15.30 per unit. If Lofy Co. accepts the offer, management could rent its unused manufacturing facilities for $54,000. Required: (A) Should Lofy Co. accept the potential supplier's offer? How much would Lofy Co.'s income increase or decrease by accepting the order? (B) What qualitative factors should companies, such as Lofy Co., consider prior to accepting/declining this type of offer from a potential supplier?

Answer rating: 100% (QA)

Ans aIf the given case Lofy Co should not accept the potential supplier order Because the cost of ma... View the full answer