(a) 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.
(b) Are there any other factors which should be considered in deciding whether to manufacture the canisters or purchase them from the outside supplier?