Question

Question #7 (6 Marks) Escher Skateboards has been manufacturing its own wheels for its skateboards Variable manufacturing overhead is charged to production at the rate of 30% of direct labour cost. The direct materials per unit are $1.50 and direct labour $1.80. Normal production is 200,000 wheels per year. A supplier offers to make the wheels at a price of $4 each. If the skateboard company accepts this offer, all variable manufacturing costs will be eliminated, but fixed costs will have to be absorbed by other products Instructions Should the company buy the wheels from the outside supplier? Justify your answer with an incremental analysis for the decision to make or buy the wheels.

Answer 1

Answers = = Make | Buy decision 8. cost of making the wheels = 3.84. ( 1.50 +1.80+ 0.54) cost of boy from sopplier - 4 loss on boy from outside 0.16 compared making It is better to manufacture the wheels in the company itself Scanned with CamScanner