Situational Decsisions, Financial Accounting

Assignment Help:
Your Company makes 42,000 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 material $15.00
Direct labor 18.00
Variable manufacturing overhead 4.00
Fixed manufacturing overhead 25.00
Unit product cost $62.00

An outside supplier has offered to sell the company all of these parts it needs for $51.80 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 $268,000 per year.
If the part were purchased from the outside supplier, all of the direct labor cost of the part would be avoided. However, $17.00 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.
Required:
a. How much of the unit product cost of $62.00 is relevant in the decision of whether to make or buy the part?
b. What is the net total dollar advantage (disadvantage) of purchasing the part rather than making it?
c. What is the maximum amount the company should be willing to pay an outside supplier per unit for the part if the supplier commits to supplying all 42,000 units required each year?

Related Discussions:- Situational Decsisions

Total cost at each breakeven, Q. The British Mini car was designed by ...

Q. The British Mini car was designed by a team headed by Sir Alec Issigonis in the late 1950's. Describe the process of the design of this product. Consider the context of

Legal delinquency, Omission to do something which a reasonable man, guided ...

Omission to do something which a reasonable man, guided by those ordinary considerations that ordinarily regulate human affairs, would do or doing of something that a reasonable an

Show example of internal rate of return, Q. Show example of Internal rate o...

Q. Show example of Internal rate of return? IRR (Internal rate of return) is a discounted cash flow investment appraisal method that calculates the discount rate which causes th

What is the sampling unit, What is the objective of performing this test? W...

What is the objective of performing this test? What is the sampling unit? What is the population? These are the questions I am confused on the sampling and population I have som

Adjustments, provide for depreciation at 10%p.a at cost for equipment and 1...

provide for depreciation at 10%p.a at cost for equipment and 15% at book value for vehicles

Accounting for lease, what are the concept of economic substance over legal...

what are the concept of economic substance over legal form under accounting for lease?

Describe about capital stock, Q. Describe about Capital Stock? Capital ...

Q. Describe about Capital Stock? Capital Stock - Ownership shares of a CORPORATION authorized by its ARTICLES OFINCORPORATION. Money value assigned to a corporation's issued sh

What do you mean by depreciation, Q. What do you mean by depreciation? What...

Q. What do you mean by depreciation? What are the causes for depreciation? Explain the two methods of depreciation. Depreciation means a fall in the quality, quantity or value o

Trust accounts-breach of law-trusts accounts, TRUST ACCOUNTS (a) Obje...

TRUST ACCOUNTS (a) Object of trust accounts : To demonstrate that the trust funds have been applied in accordance with the trust instrument; To give details of tra

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd