90.2K

Verified Solution

Link Copied!

Located in Kentucky, Cub Cadet which was founded in 1961 and manufactures lawnmowers and snowblowers. Cub Cadet has always produced the skid shoes for its snowblowers. An outside supplier has offered to sell the skid shoes to Cub Cadet for a cost of $36 per unit. Cub Cadet has accumulated the following financial information relating to its own cost of producing the skid shoe internally: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead, traceable Fixed manufacturing overhead, allocated Total cost 20,000 Units Per per Unit Year $ 13 $ 260,000 11 220,000 4 80,000 6* 120,000 9 180,000 $ 43 $ 860,000 *One-third supervisory salaries; two-thirds depreciation of special equipment (no resale value). Required: 1. Assuming the company has no alternative use for the facilities that are now being used to produce the skid shoes, what would be the financial advantage (disadvantage) of buying 20,000 skid shoes from the outside supplier? 2. Should the outside supplier's offer be accepted? 3. Suppose that if the skid shoes were purchased, Cub Cadet could use the freed capacity to launch a new product. The segment margin of the new product would be $200,000 per year. Given this new assumption, what would be the financial advantage (disadvantage) of buying 20,000 skid shoes from the outside supplier? 4. Given the new assumption in requirement 3, should the outside supplier's offer be accepted

Answer & Explanation Solved by verified expert

See Answer