Swiltzer Co
Subject:AccountingPrice: Bought3
Swiltzer Co. manufactures 168,000 units of a component each year that the company uses in
the production of one of its product lines. Relevant manufacturing costs for those units are as
follows:
Direct materials $315,000
Direct labour $504,000
Variable overhead $189,000
Fixed overhead $252,000
Total costs $1,260,000
Recently, management at Swiltzer Co. has received an offer from a potential supplier that is
willing to sell the components to Swiltzer Co. for $7.40 per unit. If Swiltzer Co. accepts the offer,
management could rent the manufacturing space currently used manufacturing the component
in-house for $189,000 per year.
Required:
(A) Should Swiltzer Co. accept the potential supplier's offer? How much would Swiltzer Co.'s
income increase or decrease by accepting the order?
(B) What qualitative factors should companies, such as Swiltzer Co., consider prior to
accepting/declining this type of offer from a potential supplier?
