Reference no: EM132951134
Lijia Inc. (the company) manufactures appliances. One of their divisions manufactures a timer which are used in several of their appliances. They produce 32,000 timers annually. The cost per unit for the timer is as follows:
Description Cost
Direct materials 9.00
Direct labour 3.00
Variable overhead 2.25
Fixed overhead 5.25
Total cost 19.50
- Of the total fixed overhead assigned to the timers, $64,000 is directly traceable to the production of the timer.
- The remaining fixed overhead costs are common fixed overhead and therefore unavoidable.
- An outside supplier has offered to sell the timers to Lijia Inc. for $16.50 per unit.
Required:
Problem 1: Analyze the above information and determine if the company should make or buy the timers.
Problem 2: If there was no other alternative use for the facilities that is currently used to produce the timers, should the company make or buy the timers?
Problem 3: What are the most that the company would be willing to pay an outside supplier for a one-timer?
Problem 4: If the company buys the timers, would their operating income increase, decrease, or stay the same?
Problem 5: If the company buys all of their timers, by how much would their operating income change?
Problem 6: If the company could rent out the space that is currently used to produce the timers for $22,000 per year, should the company make or buy the timers?
Problem 7: If the company buys the timers and then rents out the space that is currently used to produce the timers for $22,000 per year, by how much would their operating income change?
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