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Climate-Control, Inc., manufactures a variety of heating and air-conditioning units

Climate-Control, Inc., manufactures a variety of heating and air-conditioning units
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Price: $3.99
Availability: In Stock
Model: A
Average Rating: 5 out of 5 Stars!

Climate-Control, Inc., manufactures a variety of heating and air-conditioning units. The company is currently manufacturing all of its own component parts. An outside supplier has offered to sell a thermostat to Climate-Control for $32 per unit. To evaluate this offer, Climate-Control, Inc., has gathered the following information relating to its own cost of producing the thermostat internally:

 

                                                                                Per Unit                               15,400  

Units per year

  Direct materials                                              $ 9                                          $ 138,600     

  Direct labor                                                      11                                           169,400     

  Variable manufacturing overhead          4                                             61,600     

  Fixed manufacturing overhead, traceable 5*                                    77,000     

  Fixed manufacturing overhead, common, but allocated               13           200,200     

   Total cost                                                          $ 42                        $ 646,800     

               

*40% supervisory salaries; 60% depreciation of special equipment (no resale value).

Required 1:

1a.          Assuming that the company has no alternative use for the facilities now being used to produce the thermostat, compute the total cost of making and buying the parts. (Round your Fixed manufacturing overhead per unit rate to nearest dollar amount.)

 

 Total relevant cost (15,400 units)                              Make                                     Buy

                 

1b.          Should the outside supplier's offer be accepted?

 Required 2:      

2a.          Suppose that if the thermostats were purchased, Climate-Control, Inc., could use the freed capacity to launch a new product. The segment margin of the new product would be $100,400 per year. Compute the total cost of making and buying the parts. (Round your Fixed manufacturing overhead per unit rate to nearest dollar amount.)

 

 Total relevant cost (15,400 units)                                             Make            Buy

                 

 

2b.          Should Climate-Control, Inc., accept the offer to buy the thermostats from the outside supplier for $32 each?

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