What is the net total dollar advantage

Assignment Help Accounting Basics

Reference no: EM132825191

Question - Foster Company makes 20,000 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 $25.10

Direct labour 18.20

Variable manufacturing overhead 2.40

Fixed manufacturing overhead 13.40

Unit product cost $56.70

An outside supplier has offered to sell the company all these parts it needs for $56.00 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 $50,000 per year.

If the part were purchased from the outside supplier, all the direct labour cost of the part would be avoided. However, $5.10 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 $56.70 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 20,000 units required each year?

Reference no: EM132825191

Questions Cloud

Prepare the journal entries for the return and payment : Oriole Publishing Co. publishes college textbooks that are sold to bookstores. Prepare the journal entries for the return and payment

Appropriate strategies for properly preparing employees : What are some appropriate strategies for properly preparing employees for an expatriate assignment

Standard of proof in making out a due diligence defence : Thompson, an experienced operator of the bar bundler packager at ABC

Compute the expected share price at the end : Compute the expected share price at the end of 2020 using the perpetual growth method. Assume the market risk premium is 9.3 percent

What is the net total dollar advantage : What is the net total dollar advantage (disadvantage) of purchasing the part rather than making it

Responsibilities of the mortgage brokers to borrowers : -What were the responsibilities of the mortgage brokers to borrowers? To lenders? To investors? How well did they fulfill their responsibilities? Why?

Different data algorithms : When using different data algorithms, why is it fundamentally important to understand why they are being used?

Discussing the concept of risk modeling : Write a research paper discussing the concept of risk modeling. Please also evaluate the importance of risk models. Lastly, construct an approach to modeling.

Make the statement of changes in shareholders equity : Accumulated other comprehensive income (445,000). Prepare the statement of changes in shareholders' equity for the year ended December 31, 2021.

User Account

All Pages