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ACC-650 TOPIC 5 ASSIGNMENT

Question 10

Pharoah Water Co. is a leading producer of greenhouse irrigation systems. Currently, the company manufactures the timer unit used in each of its systems. Based on an annual production of 42,500 timers, the company has calculated the following unit costs. Direct fixed costs include supervisory and clerical salaries and equipment depreciation.

Direct materials		$11
Direct labor		7
Variable manufacturing overhead		4
Direct fixed manufacturing overhead		9	(30% salaries, 70% depreciation)
Allocated fixed manufacturing overhead		7
Total unit cost		$38

Clifton Clocks has offered to provide the timer units to Pharoah at a price of $35 per unit. If Pharoah accepts the offer, the current timer unit supervisory and clerical staff will be laid off.

(a1)

Calculate the total relevant cost to make or buy the timer units. (Round answers to 0 decimal places, e.g. 5,250.)

	Make		Buy
Total relevant cost	$enter a dollar amount rounded to 0 decimal places		$enter a dollar amount rounded to 0 decimal places

(a2)

Assuming that Pharoah Water has no other use for either the facilities or the equipment currently used to manufacture the timer units, should the company accept Clifton's offer?

select an option YesNo

(b1)

Assume that if Pharoah Water accepts Clifton's offer, the company can use the freed-up manufacturing facilities to manufacture a new line of growing lights. The company estimates it can sell 94,970 of the new lights each year at a price of $10. Variable costs of the lights are expected to be $7 per unit. The timer unit supervisory and clerical staff would be transferred to this new product line. Calculate the total relevant cost to make the timer units and the net cost if they accept Clifton's offer.

Total relevant cost to make	$enter a dollar amount
Net relevant cost if they accept Clifton's offer	$enter a dollar amount

(b2)

Should Pharoah Water accept Clifton's offer?

select an option Do not acceptAccept Clifton's offer.