Reference no: EM132598386

Danyao Inc. manufactures appliance. One of their divisions manufactures a timer which are used in several of their appliances. They produce 25,000 timer units annually. The cost per unit for the timer is as follows:

Description                 Cost

Direct materials          7.20

Direct labour               2.40

Variable overhead            1.80

Fixed overhead                4.20

Total cost                     15.60

Of the total fixed overhead assigned to the timers, $61,250 is directly attributable to the production of the timer. The remaining fixed overhead costs are common fixed overhead.

An outside supplier has offered to sell the timers to Danyao Inc. for $14.20 per unit.

Problem 1: If there was no other alternative use for the facilities that is currently used to produce the timers, should Danyao Inc. make or buy the timers?

a) Make

b) Indifferent

c) Buy

Problem 2: What is the most that Danyao Inc. would be willing to pay an outside supplier for one unit of the timer?

Problem 3: If Danyao Inc. buys the timers, would their operating income increase, decrease, or stay the same?

a) Decrease

b) Increase

c) Stay the same

Problem 4: If Danyao Inc. buys the timer, by how much would their operating income change?

Problem 5: If Danyao Inc. could rent out the space that is currently used to produce the timers for $15,000 per year, should the company make or buy the timers?

a) Indifferent

b) Buy

c) Make

Problem 6: If Danyao Inc. buys the part and then rents out the space that is currently used to produce the timers for $15,000 per year, by how much would their operating income change?