Golden Company makes 3,000 units per year of a part called a glup for use in one
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Question:
Golden Company makes 3,000 units per year of a part called a "glup" for use in one of its products. Data concerning the unit production costs of glup follow: | ||||||||
Direct Materials | $35 | |||||||
Direct Labor | $10 | |||||||
Variable Manufacturing Overhead | $8 | |||||||
Fixed Manufacturing Overhead | $20 | |||||||
Total Manufacturing Cost per Unit | $73 | |||||||
An outside supplier has offered to sell Golden Company all the glups it requires. If Golden decided to discontinue making the glups, 40% of the above fixed manufacturing overhead costs could be avoided. Assume that direct labor is a variable cost. | ||||||||
Assume Golden Company has no alternative use for the facilities presently devoted to production of the glups. If the outside supplier offers to sell glups for $65 each, should Golden Company accept the offer? Should the center be closed? Show calculations to support your answer. | ||||||||
Assume that Golden Company could use the facilities presently devoted to production of glups to expand production of another product that would yield an additional contribution margin of $80,000 annually. What is the maximum price Golden Company should be willing to pay the outside supplier for glups? |
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