Question

Answer the following question(s) using the information belouw. Day Star collected the following information: Cost to buy one unit $48 Production costs per unit: Direct materials $22 Direct labour Variable overhead Total fixed overhead $16 $2 $360,000 Day Star can sell 25,000 units per year, at $80 each. The company also has an offer from a subsidiary to rent its plant facilities for $2,000,000. The fixed overhead will be incurred in each alternative, but there will be a savings of $150,000 in the fixed costs under the renting altemative. 19) Based on the above information only, should Day Star make or buy the product or rent its facilities out? A) buy B) make C) either make or buy - indifferent 27 Copynght © 2019 Pearson Canada, Ic. D) rent the facilities to the subsidiary E) either make or rent - indifferent Answer: D

Answer 1

19) Based on the ginen information Selling Price per unit . $80 Borging fost +407 (16) bes Dored Labour Cost biorstelle o died Material (2a) (2) Variable of freel of a second) (14.42 $25.6 Profet while buying Set Propeta 80-6541414) 27$20.6, For an year. by selley 25000 unit by manufacturing profita 25000 x 23.6 3) 640,000 by buying pröpt a 2000x 2016 2) 515000. But while Routing out the plant, Scannecawit Beer cwilscanner

net connings will be 2,000,000 - (360000-150000) =>81,790,000 There for we can clearly say that ophon D, D read the facilities to the Subsidiary is beneficial, - 20) while bygng 32500 units The cost is 32500x45 1469,500 ® selling price will be - 32500x so © Produchin Cost 325007 411 There for $260,000 of rood 02600.000 43,35,750 lost can be ebenouahed by buying at producing 30 noo sek Thurfor mokes Total cost of produchona bh cost 16 om cost of I total cost peremit volt a CS onde 38000, $21.107 ) Eamstanne 30.500