Reference no: EM133054437

Question - Baby Shark Company is currently manufacturing part Dootdoot, producing 40,000 units actually. Dootdoot is used in the production of several products made by Baby Shark. The cost per unit for Dootdoot is as follows:

Direct materials	P9.00
Direct labor	3.00
Variable overhead	2.50
Fixed overhead	4.00
Total	P18.50

Of the total fixed overhead assigned to Dootdoot, P88,000 is direct fixed overhead (the lease of production machinery and salary of a production line supervisor-neither of which will be needed if the line is dropped). The remaining fixed overhead is common fixed overhead. An outside supplier has offered to sell the part to Baby Shark for P16. There is no alternative use for the facilities currently used to produce the part.

Required -

1. Should Baby Shark Company make or buy part Dootdoot? Indicate also 3 points the net advantage.

2. What is the most that Baby Shark would be willing to pay an outside supplier?

3. If Baby Shark bought the part, by how much would income increase or decrease?