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Goof-E Corporation currently manufactures a subassembly for its main product. The costs per unit are...

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Accounting

Goof-E Corporation currently manufactures a subassembly for its main product. The costs per unit are as follows:

Direct materials

$3.40

Direct labour

$29.80

Variable overhead

$16.10

Fixed overhead

$25.20

Total costs

$74.50

Mouse Corp. has contacted Goof-E with an offer to sell it 4,700 subassemblies for $55.20 each.

  1. Should Goof-E make or buy the subassemblies? Create a schedule that shows the total quantitative differences between the two alternatives. What are two qualitative things Goof-E should consider when considering this offer? What would you recommend the company do?
  2. The accountant decides to investigate the fixed costs to see whether any incremental changes will occur is the subassembly is no longer manufactured. The accountant believe that Goof-E will eliminate $48,880 of fixed overhead if it accepts the proposal. Does this new information change the decision and if so how?

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