Jaio is the manager of the timepiece division at Clockworks Corporation. Her friend and colleague Michael is
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Question:
Jaio is the manager of the timepiece division at Clockworks Corporation. Her friend and colleague Michael is the manager of the clock assembly division. His business line collects the component parts from the other divisions and assembles the companys signature grandfather clocks. Both Jaio and Michael are evaluated on their own divisions profitability. At the end of their weekly management meeting, they discuss an interesting opportunity.
Jaio:
I got this call out of the blue yesterday. A sales rep from Timing Co offered to sell me all of the timepieces we use in a twoweek period for just $ Thats less than my current cost. I couldnt believe it Of course, I told him I would have to think about it but it seems like a nobrainer. My employees have been working so hard. This could really help me keep my costs down so I could meet the budget and yes, my bonus, too.
Michael:
Wow! That does sound like an intriguing offer. Would you have to lay off your employees, though? Im not sure how well that would go over.
Jaio:
No I would just try this for a twoweek period, while my employees are on holiday. That would allow me to take things one step at a time.
Jaio notes the following cost structure associated with her timepieces. Proportion of Total Production Cost Direct material
Direct labor
VariableMOH allocated at of DL cost FixedMOH allocated at of DL cost Total
For an order this size, the sum of her own DM and DL would amount to $ The companys total fixed overhead cost would not change regardless of her decision.
Required questions:
How much better or worse off would Jaios timepiece division look if she purchased the timepieces instead of manufacturing them for this short period of time?
How much better off would Clockworks Corporation be if Jaio purchased these timepieces instead of manufacturing them?
Related Book For
Principles of Risk Management and Insurance
ISBN: 978-0132992916
12th edition
Authors: George E. Rejda, Michael McNamara
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