Honey Products manufactures 10,000 units of Part M-1 annually for use in its operations. The...
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Accounting
Honey Products manufactures 10,000 units of Part M-1 annually for use in its operations. The following costs are reported:
Direct materials P20,000
Direct labor 55,000
Variable factory overhead 45,000
Fixed factory overhead 70,000
P190,000
Lutton Company has offered to sell Honey 10,000 units of Part M-1 annually for P18 per unit. If Honey accepts the offer, some of the facilities presently used to manufacture Part M-1 could be rented to a third party at an annual rental of P15,000. Additionally, P4 per unit of the fixed factory overhead applied to Part M-1 would be totally eliminated.
Should Honey accept Lutton's offer? Explain. Support your answer with computations.
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