The Hayes Company Manufactures and Sells Several Products, One of Which

question 78

Essay

The Hayes Company manufactures and sells several products, one of which is called a slip differential. The company normally sells 30,000 units of the slip differential each month. At this activity level, unit costs are: An outside supplier has offered to produce the slip differentials for the Hayes Company, and to ship them directly to the Hayes Company's customers. This arrangement would permit the Hayes Company to reduce its variable selling expenses by one third (due to elimination of freight costs). The facilities now being used to produce the slip differentials would be idle and fixed manufacturing overhead would continue at 60 percent of its present level. The total fixed selling expenses of the company would be unaffected by this decision.
Required:
What is the maximum acceptable price quotation for the slip differentials from the outside supplier?

Realize the roles of returns, allowances, and discounts in adjusting gross sales.

Analyze the impact of promotional activities on expense categories within an income statement.

Understand the legal principles regarding negligent service and vicarious liability.

Comprehend the concepts of novation, equitable assignment, and statutory assignment in contract changes and transfers.

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Definitions:

Emergent Thinking

The process of developing unique patterns of thought or solutions that arise from the interaction and synergy of simpler components.

Speculation

The process of forming theories or conjectures about a subject without firm evidence.

Introspection

Introspection involves examining one's own thoughts, feelings, and sensations to gain insight.

Aristotle

An ancient Greek philosopher and polymath whose extensive writings cover a wide range of subjects, including physics, metaphysics, logic, ethics, and politics, significantly influencing Western intellectual history.