Reference no: EM133160946
Question - PPP Inc. (the company) manufactures golf clubs. One of their divisions manufactures a grip which are used in several of their golf clubs.
They produce 14,000 grips annually.
The cost per unit for the grip is as follows:
Description - Per Unit Cost
Direct materials $5.90
Direct labour $3.10
Variable overhead $2.20
Fixed overhead $11.40
Total cost $22.60
Of the total fixed overhead assigned to the grips, $112,000 is directly traceable to the production of the grips.
The remaining fixed overhead costs are common fixed overhead and therefore unavoidable.
An outside supplier has offered to sell the grips to the company for $24.00 per unit.
Required - Analyze the above information and determine if the company should make or buy the grips.
If there was no other alternative use for the facilities that is currently used to produce the grips, should the company make or buy the grips?
What is the most that the company would be willing to pay an outside supplier for one grip?
If the company buys all of their grips from the supplier, would their operating income increase, decrease, or stay the same?
If the company buys all of their grips from the supplier, by how much would their operating income change?
If the company could rent out the space that is currently used to produce the grips for $88,000 per year, should the company make or buy the grips?
If the company buys the grips from the supplier and then rents out the space that is currently used to produce the grips for $88,000 per year, by how much would their operating income change?
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