Pearl Systems produces and sells speakers and CD players. The following information has been collected...
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Accounting
Pearl Systems produces and sells speakers and CD players. The following information has been collected about the costs related to the systems:
Selling price per unit
$ 72
Production costs per unit
Direct materials
$ 23
Direct labour
18
Variable overhead
2
Total fixed overhead
$ 303,920
Pearl normally produces 23,200 of these systems per year.
The managers have recently received an offer from a Mexican company to produce these systems for $ 51 each. The managers estimate that $ 245,920 of Pearls fixed costs could be eliminated if they accept the offer.
Perform a quantitative analysis for the decision, and present your results in a schedule. (Round entries for this part to 2 decimal places, e.g. 12.55.)
Make
Buy
Purchase price
$
$
Variable costs:
Direct materials
Direct labour
Variable overhead
Avoidable fixed cost
Total
$
$
Pearl should buy/ make.
Under the general decision rule for this type of decision, what production level is required for Pearls managers to be indifferent?
Production level:
systems
Answer & Explanation
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