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ACC202 Financial And Managerial Accounting

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Question:

(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?

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