Gottshall Incorporated Makes a Range of Products

question 199

Essay

Gottshall Incorporated makes a range of products. The company's predetermined overhead rate is $19 per direct labor-hour, which was calculated using the following budgeted data:
Component P0 is used in one of the company's products. The unit cost of the component according to the company's cost accounting system is determined as follows:
An outside supplier has offered to supply component P0 for $78 each. The outside supplier is known for quality and reliability. Assume that direct labor is a variable cost, variable manufacturing overhead is really driven by direct labor-hours, and total fixed manufacturing overhead would not be affected by this decision. Gottshall chronically has idle capacity.Required:Is the offer from the outside supplier financially attractive?

Comprehend the stages of business growth and factors leading to business success.

Understand the concept of price elasticity and inelasticity and factors influencing them.

Recognize the components of the marketing mix and their flexibility.

Describe the factors influencing the determination of the "right" price for products and services.

---

Definitions:

French and Indian War

A conflict between France and Great Britain from 1754 to 1763 in North America, part of a larger struggle called the Seven Years' War, involving various Native American tribes.

Deteriorate

To become progressively worse over time.

Colonists

Individuals who settle in a new country or area, often for the purpose of establishing a colony that maintains ties with the parent country.

British

Relating to Great Britain, its people, culture, and history, or pertaining to the United Kingdom as a whole.