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1) Olive Corp currently makes 20,000 subcomponents a year in one of its factories

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1) Olive Corp currently makes 20,000 subcomponents a year in one of its factories. The unit costs to produce

 

are:

 

 

 

Direct Materials 12

 

Direct Labor 8

 

Variable manufacturing overhead 12

 

Fixed manufacturing overhead 8

 

 

 

An outside supplier has offered to provide Olive Corp with the 20,000 subcomponents at a P36 per unit price.

 

Fixed overhead is not avoidable. If Olive Corp rejects the outside offer, what will be the effect on short-term profits?

 

 

2) Olive Corp currently makes 20,000 subcomponents a year in one of its factories. The unit costs to produce

 

are:

 

 

 

Direct Materials 12

 

Direct Labor 8

 

Variable manufacturing overhead 12

 

Fixed manufacturing overhead 8

 

 

 

An outside supplier has offered to provide Olive Corp with the 20,000 subcomponents at a P36 per unit

 

price. Fixed overhead is not avoidable. What is the maximum price Olive Corp should pay the outside supplier?