Ask Question
7 October, 03:44

The Chateau Company manufactures 4,000 telephones per year. The full manufacturing costs per telephone are as follows: Direct materials $4 Direct labor $16 Variable manufacturing overhead $12 Average fixed manufacturing overhead $12 Total $44 The Quick Assembly Company has offered to sell Chateau 4,000 telephones for $31 per unit. If Chateau accepts the offer, $20,000 of fixed overhead will be eliminated. Chateau should:

+4
Answers (1)
  1. 7 October, 07:30
    0
    Answer: It is better to buy and accept the offer.

    Explanation:

    Making cost:

    Direct Material = cost * No. of telephones manufactures

    = 4 * 4000

    = 16,000

    Direct Labour = cost * No. of telephones manufactures

    = 16 * 4,000

    = 64,000

    Variable overhead = cost * No. of telephones manufactures

    = 12 * 4000

    = 48,000

    Fixed overhead = cost * No. of telephones manufactures

    = 12 * 4000

    = 48,000

    Total cost:

    = Direct Material + Direct Labour + Variable overhead + Fixed overhead

    = 16,000 + 64,000 + 48,000 + 48,000

    = $176,000

    Buy cost:

    Purchase price = Per unit price * No. of telephones purchase

    = 31 * 4000

    = 124,000

    Fixed overhead = Fixed overhead from making - fixed overhead eliminated

    = 48,000 - 20,000

    = 28,000

    Total cost = Purchase price + Fixed overhead

    = 124,000 + 28,000

    = 152,000

    Therefore, it is better to buy and accept the offer.
Know the Answer?
Not Sure About the Answer?
Get an answer to your question ✅ “The Chateau Company manufactures 4,000 telephones per year. The full manufacturing costs per telephone are as follows: Direct materials $4 ...” in 📙 Business if there is no answer or all answers are wrong, use a search bar and try to find the answer among similar questions.
Search for Other Answers