FILM 2401 Chapter Notes -First Amendment To The United States Constitution, The Gangster, The Broadway Melody
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Roll and Wind Cable, Inc. (âR&Wâ) manufactures 10,000 rollsof cable each period. The cable is used as an input for producingseveral other products that R&W manufactures. For a 100 unitbatch, R&Wâs manufacturing costs are:
Direct materials | $170 |
Direct labor | 100 |
Manufacturing overhead | 275 |
Total | $545 |
Included in manufacturing overhead is $175 per batch fordepreciation expenses on production facilities and productionequipment. No other costs or expenses need to be considered.
An outside supplier has offered to sell R&W the 10,000 rollsof cable necessary to meet production needs this period for alump-sum of $45,000.
Assume that using the outside supplies will not impact thecompanyâs sales activities.
Required
1.Using the given information, evaluate and provide advice tothe company regarding accepting or rejecting the outside supplierâsoffer.
2.Using the same information, re-evaluate the outside suppliersoffer, with the additional facts:
If the company accepts the outside suppliers offer, they renttheir unused production facilities to generate $30,000 ofadditional revenue and
They will incur additional costs associated with renting theirfacilities will of: (a) $7,000 for security and (b) $5,000 forinsurance.
3.Before making a final decision, suggest at least 3qualitative, i.e. non-quantitative issues, the company shouldconsider before accepting or rejecting the suppliers offer.