Essay
Janeiro Skate, Incorporated currently manufactures the wheels that it uses for its in-line skates. The annual costs to manufacture the 150,000 wheels needed each year are as follows:
Kasba Rubber Company has offered to provide Janeiro with all of its annual wheel needs for $3.50 per wheel. If Janeiro accepts this offer, 75% of the fixed manufacturing overhead above could be totally eliminated. Also, Janeiro would be able to rent out the freed up space and could generate $72,000 of income annually. Assume that direct labor is a variable cost.
Required:
Based on this information, would Janeiro be financially better off to continue making the wheels or to buy them from Kasba?
Correct Answer:
Verified
* 0.75 × $300,000 = $225,000
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Correct Answer:
Verified
* 0.75 × $300,000 = $225,000...
View Answer
Unlock this answer now
Get Access to more Verified Answers free of charge
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