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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 $31 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 | 14,600 Units per year |
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| Direct materials | $ | 9 | $ | 131,400 |
| Direct labor | 11 | 160,600 | ||
| Variable manufacturing overhead | 2 | 29,200 | ||
| Fixed manufacturing overhead, traceable | 6* | 87,600 | ||
| Fixed manufacturing overhead, common, but allocated | 13 | 189,800 | ||
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| Total cost | $ | 41 | $ | 598,600 |
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| *40% supervisory salaries; 60% depreciation of special equipment (no resale value). |
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| 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 two decimals and your final answers to the nearest dollar amount.Omit the “$” sign in your response.) |
| Make | Buy | |
| Total relevant cost (14,600 units) | $ | $ |
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| 1b. | Should the outside supplier’s offer be accepted? | ||||
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| 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 $116,360 per year. Compute the total cost of making and buying the parts. (Round your Fixed manufacturing overhead per unit rate to two decimals and your final answers to the nearest dollar amount. Omit the “$” sign in your response.) |
| Make | Buy | |
| Total relevant cost (14,600 units) | $ | $ |