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If the part were purchased from the outside supplier, all of the direct
labor cost of the part would be avoided. However, $6.20 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:
i. How much of the unit product cost of $52.30 is relevant in the
decision of whether to make or buy the part?
ii. What is the net total dollar advantage (disadvantage) of purchasing
the part rather than making it?
iii. 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 30,000 units required each year?
5.
Question :
(TCO D) Biello Co. manufactures and sells medals for winners of
athletic and other events. Its manufacturing plant has the capacity to
produce 15,000 medals each month; current monthly production is
14,250 medals. The company normally charges $115 per medal. Cost
data for the current level of production are shown below.
Variable Costs
Direct Materials
$969,000
Direct Labor
$270,750
Selling and Administrative
$270,075
Fixed Costs
Manufacturing
$370,550