Question

Q2) Baker Corp. manufactures a high-tech recliner for weary professors after accounting classes. The motor housing unit costs for 17,500 units:

direct material                 105

direct labor                         70

variable overhead            50 (10% is avoidable)

fixed overhead                 60 (95% is a corporate allocation of common costs)

A Far East firm has offered to supply the part for $200

a) should the firm accept the outside offer?

b) Assume the firm could rent out the manufacturing space used to assemble this part for a yearly rental of $120,000. Does this rental opportunity change the decision? Show all calculations.

Answer 1

Sol!- Güven data Boter Comp. manufetuses a high-tech reclines for weary pro - fessors after accounting classes. 2) The motor housing unit costs for 17.500 units. Orsect material 105 Direct labor 70 variable overhead fixed over head 50 (10% is avoidable) GO (95% is a corporate allocation 225 ot common costs) Total cost . A farm East firm has $ 200. offered to supply the past for (a) the The outside offer. firm the accept firm accet for decision making Fixed cost is relevan as irrelevant obber price is 200. price is less than total manufaturing cost, i accept the other. unit costs for 17.500 The motor housing Total manufacturing cost - The motor housing unit costs Xmanufaturing cost per unit

Total manufaturing cost - 12500X285 total cost = 3939500 Total manufatering cost = 39395001 Less: benefit from rent - 1.20.000 Net operating cost = Total manufaturing cost -- Less: benefit from rent - 3937500-1.20.000 - 3819 500 + Net operating cost = 3817500) price leo urut offer price analysis a 17500 units X offer =19500 x 200 - 3.500.000 offer Price analysis = 3.500.000) . Accept the offer price. since obber price analysis is less than net operating cost. This rentoe opportunity doesn't change the decision