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

Modern advanced accounting, Problem 1 (28 marks) Pre-Contribution Balance ...

Problem 1 (28 marks) Pre-Contribution Balance Sheets and Fair Values June 30, 20X9 (in thousands of $) Swag Co. Perk Ltd. Pre- Contribution Fair Value Pre- Contributi

Calculate interest rate forecasting, Assume that we are in December 2009 an...

Assume that we are in December 2009 and try to make forecasts of the five year interest rate at the end of January 2010. For this question , you just need to fill out the blank s

Trustees right to be indemnified-trusts laws and accounts, Trustees right t...

Trustees right to be indemnified Trustees have, however, a right to be indemnified: 1. Out of trust property, for all expenses properly incurred in the execution of the tru

Amortization of patents, Ely purchased a patent (with a remaining legal lif...

Ely purchased a patent (with a remaining legal life of ten years) from Backo on January 1, 2010 for $300,000. Ely expected to use the patent for five years. The carrying value on B

What is fair value in stock market, Q. What is fair value in stock market? ...

Q. What is fair value in stock market? Fair value - Amount at which an asset (or liability) could be bought (or incurred) or sold (or settled) in a current transaction between

How large would the annual cash inflow, The management of Gimenez Corporati...

The management of Gimenez Corporation is investigating an investment in equipment that would have a useful life of 7 years. The company uses a discount rate of 17% in its capital b

Retained earnings, Ask question #MiniFollowing is the shareholder''s equity...

Ask question #MiniFollowing is the shareholder''s equity of Valdez Corporation on Jan. 1, 2018:Ordinary Shares, P100 par P6,000,000 Share Premium 500,000 Retained Earnings 1,800,

Make journal entries required to dispose off, make journal entries require...

make journal entries required to dispose off over or under applied manufacturing overhead assuming it is allocated among work in process, finished goods and cost of goods sold ba

Compute the total amount of dividends that was paid to each, Vantage Compan...

Vantage Company issued bonds with a $500,000 face value and a 6% stated rate of interest on January 1, 2013. The bonds carried a 5-year term and sold for 95. Vantage uses the strai

Tax expense, 1. An organization owes £300,000 tax at 1.7.X4 and £450,000 at...

1. An organization owes £300,000 tax at 1.7.X4 and £450,000 at 30.6.X5. Its income statement for the year to 30.6.X5 includes a tax charge of £400,000. How much tax was actually pa

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