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Problem 8-24 (Part Level Submission) Oriole Water Co. is a leading producer of greenhouse irrigation systems. Currently, the(b1) * Your answer is incorrect. Try again. Assume that if Oriole Water accepts Cliftons offer, the company can use the free

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Answer #1
(a1)
Make Buy
Direct materials ( 12 * 40620 ) 487440
Direct labor ( 6 * 40620 ) 243720
Variable manufacturing overhead ( 3 * 40620 ) 121860
Direct fixed manufacturing overhead (Salaries) ( 10 * 30% * 40620 )   121860
Purchase cost ( 35 * 40620 ) 1421700
Total relevant cost 974880 1421700
(b1)
New lights
Sales ( 89780 * 11 ) 987580
(-) Variable cost ( 89780 * 8 ) 718240
Contribution margin 269340
147480
Total relevant cost to make = Direct materials + Direct labor + Variable manufacturing overhead = 487440 + 243720 + 121860 853020
Net relevant cost if they accept Clifton's offer = Purchase cost - Contribution margin from the new lights = 1421700 - 269340 1152360
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