Janeiro Skate, Inc

question 52

Essay

Janeiro Skate, Inc.currently manufactures the wheels that it uses for its in-line skates.The annual costs to manufacture the 150,000 wheels needed each year are as follows: Kasba Rubber Company has offered to provide Janeiro with all of its annual wheel needs for $3.50 per wheel.If Janeiro accepts this offer, 75% of the fixed manufacturing overhead above could be totally eliminated.Also, Janeiro would be able to rent out the freed up space and could generate $72,000 of income annually.Assume that direct labor is a variable cost.

Required:
Based on this information, would Janeiro be financially better off to continue making the wheels or to buy them from Kasba?

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Definitions:

Enduring Principles

Fundamental truths or values that are consistently held to be important and are used as a foundation for decision-making across time.

Ethical Principles

Principles that guide behavior and decisions based on ideas of right and wrong.

Formal Statement

An official, written expression of a fact, opinion, or policy, often used in legal, professional, or academic contexts.

Corruption

The abuse of entrusted power for private gain, manifesting in various forms such as bribery, embezzlement, and nepotism, negatively affecting the efficiency and fairness of public and private sectors.