Reference no: EM132804485
Leland manufacturing uses 10 units of Part Number K137 each month in the production of radar equipment. the unit cost to manufacture one unit of K137 is presented below.
Direct materials P 1,000
Materials handling (20% of direct material cost) 200
Direct labor 8,000
Manufacturing overhead (150% of direct labor) 12,000
- Materials handling represents the direct variable costs of the receiving department that are applied to direct materials and purchased components on the basis of their costs. This is a separate charge in addition to manufacturing overhead. Leland's annual manufacturing overhead budget is one-third variable and two-thirds fixed. Scott Supply, one of Leland's reliable vendors, has offered to supply Part No. K137 at a unit price of P15,000.
Problem 1. If Leland purchase the K137 units from Scott, the capacity Leland used to manufacture these parts would be idle. Should Leland decide to purchase the parts from Scoot, what would be the impact on net income?
Problem 2. Assume Leland Manufacturing is able to rent all idle capacity for P25,000 per month. If Leland decides to purchase the 10 units from Scott Supply, What is the impact on costs of K137?
Problem 3. Assume that Leland does not wish to commit to a rental agreement but could use idle capacity to manufacture another product that would contribute P52,000 per month. If Leland elects to manufacture K137 in order to maintain quality control, What is the opportunity cost?
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