Leland Manufacturing Company Assignment
Leland Manufacturing Company uses 10 units of part KJ37 each month in the production of radar equipment. The cost of manufacturing one unit of KJ37 is the following: Direct material OVC Material handling (20% of the direct material cost) Direct labor Manufacturing overhead (150% of direct labor) Total manufacturing cost P 1,000 200 8,000 12.000 P21.200
Material handling represents the direct variable costs of the Receiving Department that are applied to direct materials and purchased components on the basis of their cost. This is a separate charge in addition to manufacturing overhead. Leland's annual manufacturing overhead budget is one-third variable and two-third fixed. Scott Supply, one of Leland's reliable vendors, has offered to supply part number KJ37 at a unit price of P15,000. REQUIRED: 1. If Leland purchases the KJ37 units from Scott, the capacity Leland used to manufacture these parts would be idle. Should Leland decide to purchase the parts from Scott, the unit cost of KJ37 would increase or decrease by what amount? P4,800 2. Assume Leland Manufacturing is able to rent out all the idle capacity for P25,000 per month. If Leland decides to purchase the 10 units from Scott Supply Leland's monthly cost for KJ37 would increase or decrease by what amount? P23,000 3. Assume Leland Manufacturing does not wish to commit to a rental agreement but could use its idle capacity to manufacture another product that would contribute P52.000 per month. If Leland elects to manufacture KJ37 in order to maintain quality control, what is the net amount of Leland's cost from using the space to manufacture part KJ37? P4,000. .