The Playdough company currently produces 760,000 playdough canisters per year  at its local plant as it sells the product in canisters.The details of the costs in producing the canisters are :

  Direct materials                                                                                     $ 300,000

  Direct labour 12000 hrs at $15 per hr                                                 180,000

  Variable overhead $10 per direct labour hr                                       120,000

  Fixed overhead $45 per direct labour hr                                             540,000

  Total cost                                                                                            $ 1,140,000

The Playdough company has received an offer from the Cannister company to supply the cannisters at $1 per canister .The only fixed overhead that would be avoided would be $80,000 of supervisors salaries and $28,000 machinery depreciation .The remaining fixed overhead would continue to be incurred.

The Playdough company currently sell their canisters for $2.20 per canister .

Required:

(a) Calculate the cost per unit of producing the canisters under the traditional approach

(b) Should the company purchase the canisters or continue manufacturing them ?Show workings

(c) The company has decided to continue manufacturing the canisters and has a special order for

    the canisters from an outside client who has offered $1.40 per canister for 20,000 canisters . As

    the firm has capacity purely on financial grounds  should the firm accept the offer?

(d) What other factors should the firm consider before deciding whether to accept the order in

    part (c)?

(e) The Playdough company has been approached to manufacture special coffee cups .This would

    have the following costs per unit :

         Direct material                                                                      $ 0.60

         Direct labour                                                                            0.20

         Variable overhead                                                                  0.10

         Fixed overhead                                                                        0.15

   The coffee cups would then be sold for $1.20 per coffee cup .It could manufacture and sell

   400,000 of these coffee cups . Should.the Playdough company  purchase the canisters from

  the Canister company and start manufacturing coffee cups or continue manufacturing

    canisters? Show workings .

   (f) Are there any other factors which should be considered in deciding whether to manufacture

       the canisters or purchase them from the outside supplier?

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Status NEW Posted 16 Dec 2017 02:12 PM My Price 10.00

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