Ask Question
13 October, 09:47

Wood Chuck Furniture currently manufactures rocking chairs as its main product. Each chair uses one seat cushion and one back cushion with the following costs per set of cushions (one seat and one back) : Direct materials $ 1 Direct labor 10 Variable overhead 5 Fixed overhead 8 Total $ 24 Shepert Company has contacted Wood Chuck with an offer to sell it 5,000 sets of cushions for $18 each. If Wood Chuck buys the cushions, $2 of the fixed overhead per unit will be allocated to other products. Should Wood Chuck make or buy the cushions

+1
Answers (1)
  1. 13 October, 10:43
    0
    Yes buy the cushions

    Explanation:

    The computation is shown below:

    = Manufacturing cost - purchase cost

    where,

    Manufacturing cost is

    = Direct materials + direct labor + variable overhead cost + fixed overhead cost

    = $1 + $10 + $5 + $6

    = $22

    The fixed overhead cost is

    = $8 - $2

    = $6

    And, Purchase cost is $18

    Savings cost is

    = $22 - $18

    = $4 per set

    And, the number of sets is 4,000 cushion sets

    So, total amount saved is

    = 5,000 cushion sets * $4 per set

    = $20,000
Know the Answer?
Not Sure About the Answer?
Find an answer to your question ✅ “Wood Chuck Furniture currently manufactures rocking chairs as its main product. Each chair uses one seat cushion and one back cushion with ...” in 📘 Business if you're in doubt about the correctness of the answers or there's no answer, then try to use the smart search and find answers to the similar questions.
Search for Other Answers