Red Nose Company makes hoses for its sprayers. The relevant costs to make each hose are $35 for materials, $20 for labor, and $9 for variable overhead, while buying each hose costs $70. Making the hoses saves $3.60 per unit compared to buying. Since making 5000 hoses would save $18,000 total, the company should buy the hoses.
Red Nose Company makes hoses for its sprayers. The relevant costs to make each hose are $35 for materials, $20 for labor, and $9 for variable overhead, while buying each hose costs $70. Making the hoses saves $3.60 per unit compared to buying. Since making 5000 hoses would save $18,000 total, the company should buy the hoses.
Red Nose Company makes hoses for its sprayers. The relevant costs to make each hose are $35 for materials, $20 for labor, and $9 for variable overhead, while buying each hose costs $70. Making the hoses saves $3.60 per unit compared to buying. Since making 5000 hoses would save $18,000 total, the company should buy the hoses.
Red Nose Company makes hoses for its sprayers. The relevant costs to make each hose are $35 for materials, $20 for labor, and $9 for variable overhead, while buying each hose costs $70. Making the hoses saves $3.60 per unit compared to buying. Since making 5000 hoses would save $18,000 total, the company should buy the hoses.
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19.
Red Nose Company makes hoses f
or its sprayers. Unit costs applicable to these hoses are: Direct materials P35.00 Direct labor 20.00 General and Administrative cost 16.00 Fixed manufacturing overhead 21.00 Variable manufacturing overhead 9.00 Five thousand units (5,000) are requi red for the year. The space that is used for the hoses production can be used as warehouse and will save rental cost of P48,000 per year. The hoses can be bought for P70.00 a piece. Should Red Nose Co. buy or make the hoses? Why? A. Buy because there will be savings of P3.60 per hose. B. Make, there will be a savings of P6.00 per hose C. Make, because there will be savings of P31.00 per hose D. Buy, because there will be savings of P31.00 per hose (rpcpa) 19. A ? Should the company make or buy the hoses? In the short - term profit analysis, whichever alternative that gives a lower total relevant cost will be chosen to generate savings and increase the income of the business. The relevant costs analysis is shown below: Cost to make Cost to buy Un it purchase price P - P 70.00 Unit direct materials 35.00 Unit direct labor cost 20.00 Unit variable manufacturing overhead 9.00 Savings in rental (P48,000/5,000) ________ ( 9.60) Net relevant costs P 64.00 P 60. 40 Less: Cost to buy 60.40 Net advantage of buying per unit P 3.60 The company should buy the hoses and save an amount of P3.60 per hose or a total savings of P18,000 ( i.e., 5,000 x P3.60). The fixed manufacturing overhead is not expect ed to change between the alternatives and is considered irrelevant in the analysis. Avoidable fixed overhead is, however, to be included in the make - or - buy costs analysis. The general and administrative cost, since the problem is silent, is considered as f ixed and is also an irrelevant cost. 20. The Blue Plate Company is operating at 50% capacity producing 100,000 units ceramic plates a year. With the economic boom that the country is expected to have in the coming year, the company plans to utilize 75% of capacity. Part of the manufacturing process is hand - painting which has a variable cost of material at P4.50 and labor at P5.50 per plate. This painting process has variable overhead at P1.00 which is 40% of total variable factory overhead. Total factory o verhead is set at P500 per 100 plates. No increase in fixed factory overhead is expected even with the substantial increase in production. An offer to sub - contract the incremental hand painting job was a given at P10.50 per plate but the company will have to lease an equipment at P10,000 annual rental. The plates sell for P50.00 a piece at the contribution margin rate of 45%. Should Blue Plate Company sub - contract? Why? A. No because the company will lose P135,000. B. Yes, because the company will save P165,000. C. Yes, because the company will earn P15,000 more. D. No, because there is no benefit for the company. (rpcpa) 20. C ? Should the company sub - contract the additional units to be produced? The company is presently operating at 50% capacity producing 100,000 units. It wants to increase its production to 75%. One of the production processes in producing the product may be sub - contracted at P10.50 per unit. The company should rent an equipment for P10,000 if the process is sub - contracted. The costs and s hort - term profit analyses are as follows: a. Production at 75% capacity (100,000/50% x 75%) 150,000 units Less: Present production at 50% capacity 100,000 units Incremental units to be produced 50,000 units b. Relevant costs analysis: Cost to make Cost to sub - contract Materials (50,000 x P4.50) P225,000 Labor (50,000 x P5.50) 275,000 Variable overhead (50,000 x P1.00) 50,000 Sub - contract price (50,000 x P10.50) P 525,000 Equipment rental _______ 10,000 Total relevant costs 550,000 P 535,000 Less: Relevant costs to sub - contract 535,000 Savings from sub - contracting P 15,000 The company should sub - contract the additional 50,000 units and earn a savings of P15,0 00
Thirty Percent of Overhead Is Fixed at Any Production Level From 80,000 Units To 90,000 Units The Remaining 70% of Annual Overhead Cost Are Variable With Respect To Volume