Unicorn Company has been manufacturing its own seat for its bicycles. The company is currently operating at 100% plant capacity. Every year, the company has a normal production of 30,000 bicycle seats. The company cost accountant provides the following costs data information for one unit of bicycle seat: Direct materials RM6.30 Direct labour 3.20 2.40 Variable manufacturing overhead Total variable manufacturing costs RM11.90 During the year, the company receives an offer from a supplier to manufacture the bicycle seat at a price of RM14 per unit. If Unicorn Company accepts the supplier's offer, all variable manufacturing costs will be eliminated, but 80% of fixed manufacturing overhead amounted to RM46,000 currently being charged to the bicycle seat will have to be absorbed by other products. The cost accountant informed that if the bicycle seats are purchased from the supplier, Unicorn Company can use the released capacity resources to generate an additional income of RM30,000. Required 1) Prepare an incremental analysis for the decision to make or buy the bicycle seat 2) Should Unicorn Company make or buy the bicycle seat. Explain your answer.
Unicorn Company has been manufacturing its own seat for its bicycles. The company is currently operating at 100% plant capacity. Every year, the company has a normal production of 30,000 bicycle seats. The company cost accountant provides the following costs data information for one unit of bicycle seat: Direct materials RM6.30 Direct labour 3.20 2.40 Variable manufacturing overhead Total variable manufacturing costs RM11.90 During the year, the company receives an offer from a supplier to manufacture the bicycle seat at a price of RM14 per unit. If Unicorn Company accepts the supplier's offer, all variable manufacturing costs will be eliminated, but 80% of fixed manufacturing overhead amounted to RM46,000 currently being charged to the bicycle seat will have to be absorbed by other products. The cost accountant informed that if the bicycle seats are purchased from the supplier, Unicorn Company can use the released capacity resources to generate an additional income of RM30,000. Required 1) Prepare an incremental analysis for the decision to make or buy the bicycle seat 2) Should Unicorn Company make or buy the bicycle seat. Explain your answer.
Managerial Accounting
15th Edition
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:Carl Warren, Ph.d. Cma William B. Tayler
Chapter8: Budgeting
Section: Chapter Questions
Problem 4CMA: Krouse Company produces two products, forged putter heads and laminated putter heads, which are sold...
Related questions
Question
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 2 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Managerial Accounting
Accounting
ISBN:
9781337912020
Author:
Carl Warren, Ph.d. Cma William B. Tayler
Publisher:
South-Western College Pub
Financial And Managerial Accounting
Accounting
ISBN:
9781337902663
Author:
WARREN, Carl S.
Publisher:
Cengage Learning,
Principles of Accounting Volume 2
Accounting
ISBN:
9781947172609
Author:
OpenStax
Publisher:
OpenStax College
Managerial Accounting
Accounting
ISBN:
9781337912020
Author:
Carl Warren, Ph.d. Cma William B. Tayler
Publisher:
South-Western College Pub
Financial And Managerial Accounting
Accounting
ISBN:
9781337902663
Author:
WARREN, Carl S.
Publisher:
Cengage Learning,
Principles of Accounting Volume 2
Accounting
ISBN:
9781947172609
Author:
OpenStax
Publisher:
OpenStax College
Managerial Accounting: The Cornerstone of Busines…
Accounting
ISBN:
9781337115773
Author:
Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher:
Cengage Learning
Principles of Cost Accounting
Accounting
ISBN:
9781305087408
Author:
Edward J. Vanderbeck, Maria R. Mitchell
Publisher:
Cengage Learning
Cornerstones of Cost Management (Cornerstones Ser…
Accounting
ISBN:
9781305970663
Author:
Don R. Hansen, Maryanne M. Mowen
Publisher:
Cengage Learning