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
Perth Corporation has two operating divisions, a casino and a hotel. The two divisions meet the requirements for segment disclosures. Before transactions between the two divis
Pick a costing method: process, job, or activity based. Explain the nature of your chosen method. What types of organizations should choose that method?
You are the chief financial officer of General Motors Corporation (GM) at the beginning of 2009. The company’s board of directors has asked you to inform board’s audit committ
Within this year your property taxes on your commercial building are not likely to change, and as such they are considered fixed; yet with a simple change in operating perio
Hoover Inc. uses a job-order coding system. The company's inventory balances on February 1, the start of its fiscal year, were as follows:
Find an article that is related to using managerial accounting information. Write a 750 - 1,000 word paper that provides a summary and a reaction to the article. The summary
Advanced Corporate Reporting (FIN4033) - Discuss the professional and ethical duties of the CFO/accountant. Evaluate the financial reporting framework and advise on and report
the principle of financial accountability applicable to legal practices in Africa and if so, in what way and discuss the meaning of the principle of financial accountability?