Every year Sheffield Industries manufactures 8,200 units of part 231 for use in its production cycle. The
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Every year Sheffield Industries manufactures 8,200 units of part 231 for use in its production cycle. The per unit costs of part 231 are as follows:
Direct materials | $ 5 | ||
Direct labor | 12 | ||
Variable manufacturing overhead | 5 | ||
Fixed manufacturing overhead | 10 | ||
Total | $32 |
Flintrock, Inc., has offered to sell 8,200 units of part 231 to Sheffield for $32 per unit. If Sheffield accepts Flintrock’s offer, its freed-up facilities could be used to earn $14,400 in contribution margin by manufacturing part 240. In addition, Sheffield would eliminate 40% of the fixed overhead applied to part 231.
(a) Calculate total relevant cost to make and net cost to buy.
Total relevant cost to make | $Enter total relevant cost to make in dollars |
Net relevant cost to buy | $Enter net relevant cost to buy in dollars |
(b) Should Sheffield accept Flintrock’s offer?
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