Climate -Control, Inc.
Climate-Control, Inc., manufactures a variety of heating and air-conditioning units. The company is currently manufacturing all of its own component parts.
An outside supplier has offered to sell a thermostat to Climate-Control for $43 per unit. To evaluate this offer, Climate-Control, Inc., has gathered the following information relating to its own cost of producing the thermostat internally
| |
|
Per Unit |
|
14,500 Units |
| |
|
|
per year |
| Direct materials |
$ |
13 |
$ |
188,500 |
| Direct labor |
|
15 |
|
217,500 |
| Variable manufacturing overhead |
|
2 |
|
29,000 |
| Fixed manufacturing overhead, traceable |
|
6* |
|
87,000 |
| Fixed manufacturing overhead, common, but allocated |
|
17 |
|
246,500 |
|
|
|
|
|
| Total cost |
$ |
53 |
$ |
768,500 |
*40% supervisory salaries; 60% depreciation of special equipment (no resale value).
Required:
Assuming that the company has no alternative use for the facilities now being used to produce the thermostat, compute the total cost of making and buying the parts.
(Round your Fixed manufacturing overhead per unit rate to two decimals and your final answers to the nearest dollar amount.
Suppose that if the thermostats were purchased, Climate-Control, Inc., could use the freed capacity to launch a new product. The segment margin of the new product would be $159,700 per year.
Compute the total cost of making and buying the parts. (Round your Fixed manufacturing overhead per unit rate to two decimals and your final answers to the nearest dollar amount.
Should Climate-Control, Inc., accept the offer to buy the thermostats from the outside supplier for $43 each?
Solex Company manufactures three products from a common input in a joint processing operation. Joint processing costs up to the split-off point total $99,000 per year.
The company allocates these costs to the joint products on the basis of their total sales value at the split-off point.
These sales values are as follows: product X, $55,000; product Y, $91,000; and product Z, $65,000
Each product may be sold at the split-off point or processed further. Additional processing requires no special facilities.
The additional processing costs and the sales value after further processing for each product (on an annual basis) are shown below
| Product |
Additional |
Sales Value after |
| Processing Costs |
Further Processing |
| X |
38,000 |
82,000 |
| Y |
37,000 |
159,000 |
| Z |
10,000 |
84,000 |
Required
Compute the incremental profit (loss) for each product. (Loss amounts should be indicated with a minus sign.
Which product or products should be sold at the split-off point?
Which product or products should be processed further?