Tent Pty Ltd is a manufacturer of roof-mounted pop-up tents. Currently the firm manufactures the steel supporting
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Question:
Tent Pty Ltd is a manufacturer of roof-mounted pop-up tents. Currently the firm manufactures the steel supporting frames internally. The cost per unit to manufacture these frames internally are as follows:
Direct materials | $50.00 |
Direct labour | $28.00 |
Variable overhead | $20.00 |
Fixed overhead | $50.00 |
An external supplier has offered to produce 5,000 frames for $110.00 per unit. $25,000 in fixed overhead will be avoided if this offer is accepted.
Required:
- On financial grounds, is the above proposal acceptable?
- What qualitative factors should be recognised in the analysis of this decision?
- Overall, should the offer be accepted?
Related Book For
Management Accounting
ISBN: 9781760421144
7th Edition
Authors: Kim Langfield Smith, Helen Thorne, David Alan Smith, Ronald W. Hilton
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