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Question - Pamela Company makes steel blades for lawn mowers that it heat treats, assembles and sells. The cost accounting system gives the following data
Prime costs P80,000
Variable manufacturing overhead 60,000
Fixed manufacturing overhead 90,000
Units produced 100,000 units
Pamela has an opportunity to purchase its 100,000 blades from an outside supplier at a cost of P2.20 per blade. Inspection of the purchased blades will cost an additional P5,000 in the Quality Assurance Dept. Certain leased equipment, which costs P30,000 and is included in fixed overhead can be avoided if the blades are purchased. The leased space could be used to make a part that is now purchased, which would save Pamela P46,000
Should Pamela buy the blades from outside supplier?
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