Evaluating relevant cost
Course:- Managerial Accounting
Reference No.:- EM1349826

Assignment Help
Expertsmind Rated 4.9 / 5 based on 47215 reviews.
Review Site
Assignment Help >> Managerial Accounting

Question: Ahron Company makes 76,000 units per year of a part it uses in the products it manufactures. The unit product cost of this part is computed as follows:

Direct materials: $14.2
Direct labor: 16.8
Variable manufacturing overhead: 1.5
Fixed manufacturing overhead: 20.7
Unit product cost: $53.2

An outside supplier has offered to sell the company all of these parts it needs for $47.2 a unit. If the company accepts this offer, the facilities now being used to make the part could be used to make more units of a product that is in high demand. The additional contribution margin on this other product would be $553,000 per year.

If the part were purchased from the outside supplier, all of the direct labor cost of the part would be avoided. However, $13.5 of the fixed manufacturing overhead cost being applied to the part would continue even if the part were purchased from the outside supplier. This fixed manufacturing overhead cost would be applied to the company's remaining products.

How much of the unit product cost of $53.2 is relevant in the decision of whether to make or buy the part?

- $16.8
- $39.7
- $32.5
- $53.2

Put your comment

Ask Question & Get Answers from Experts
Browse some more (Managerial Accounting) Materials
Cool Surfboards has two departments using the services of the Payroll department. Total monthly payroll shared cost is $6,000. What is the amount of payroll costs allocated to
Which of the two systems will be more profitable for the firm if sales for either system are expected to average 150,000 units per year? How many units must the compan
What journal entries did they book to go from the beginning balance to the ending balance? How much more or less expense was booked under the accrual basis than the cash basis
ACC202- Parker is trying to enter a foreign market. What is the minimum price it could enter this market in the short term? What is the minimum price in the long term?
Which provides the best information on profitability: a single overhead cost pool with head- count as the allocation base, or multiple cost pools using headcount, sales, and s
A company raised $50,000 in cash by taking a one-year loan of $10,000 and a 5-year loan of $40,000. Which of the following is the correct journal entry to record this transa
How does this Costco video relate to topics that you have learned in Managerial Accounting & Control? Discuss two or three topics that you have learned throughout the course
Assume that the firm adds another product to its product line and that the new product sells for $20 per unit, has variable costs of $14 per unit, and causes fixed expenses in