Southern Star Cold Storage (SSCS) produces ice machines. Some of the ice machines SSCS makes require a
Question:
Southern Star Cold Storage (SSCS) produces ice machines. Some of the ice machines SSCS makes require a component called a type AF condenser. Accordingly, SSCS produces 20,000 type AF condensers each year.
Halifax Electric has offered to supply SSCS with the condensers for $101 each. The facilities SSCS uses to make the condensers can be rented to another company for $24,000 per year. SSCS’s annual production cost for the type AF condensers is as follows:
Direct material $ 940,000
Direct labor 730,000
Variable manufacturing overhead 302,000
Fixed manufacturing overhead 240,000
Total $2,212,000 In addition, $40,000 in fixed factory overhead will be avoided if the company stops making the condensers.
Required:
Should SSCS accept the outside supplier’s offer?
Provide calculations to support your recommendation (use relevant costs only).
Briefly discuss two qualitative aspects SSCS should consider in this make or buy decision. Y
our discussion must identify one factor that supports making the condenser order and one factor that supports buying the condenser.
Managerial Accounting A Focus on Ethical Decision Making
ISBN: 978-0324663853
5th edition
Authors: Steve Jackson, Roby Sawyers, Greg Jenkins