Assume that a company makes 30,000 units of Part A each year. At this level of production, the companys accounting system reports the following cost per unit:
| Direct materials | $ 16 |
| Direct labor | 10 |
| Variable manufacturing overhead | 4 |
| Fixed manufacturing overhead | 8 |
| Total cost per unit | $ 38 |
An outside supplier has offered to sell the company 30,000 parts per year for a price of $33 per part. The company believes that $158,600 of the fixed manufacturing overhead cost being allocated to this part will continue to be incurred even if the part is purchased from the outside supplier. What is the financial advantage (disadvantage) of buying the parts from the outside supplier?
Part U67 is used in one of Broce Corporation's products. The company's Accounting Department reports the following costs of producing the 16,600 units of the part that are needed every year. Direct materials Direct labor Variable overhead Supervisor's salary Depreciation of special equipment Allocated general overhead Per Unit $ 3.80 $ 4.50 $ 7.50 $ 8.20 $ 8.80 $ 5.80 An outside supplier has offered to make the part and sell it to the company for $31.00 each. If this offer is accepted, the supervisor's salary and all of the variable costs, including direct labor, can be avoided. The special equipment used to make the part was purchased many years ago and has no salvage value or other use. The allocated general overhead represents fixed costs of the entire company. If the outside supplier's offer were accepted, only $22,600 of these allocated general overhead costs would be avoided. Required: a. Prepare a report that shows the financial impact of buying part U67 from the supplier rather than continuing to make it inside the company. b. Which alternative should the company choose? Complete this question by entering your answers in the tabs below. Required A Required B Prepare a report that shows the financial impact of buying part U67 from the supplier rather than continuing to make it inside the company. Make Buy Direct materials Direct labor Variable overhead Supervisor's salary Depreciation of special equipment Allocated general overhead Outside purchase price Total cost Required A Required B Part U67 is used in one of Broce Corporation's products. The company's Accounting Department reports the following costs of producing the 16,600 units of the part that are needed every year. Direct materials Direct labor Variable overhead Supervisor's salary Depreciation of special equipment Allocated general overhead Per Unit $ 3.80 $ 4.50 $ 7.50 $ 8.20 $ 8.80 $ 5.80 An outside supplier has offered to make the part and sell it to the company for $31.00 each. If this offer is accepted, the supervisor's salary and all of the variable costs, including direct labor, can be avoided. The special equipment used to make the part was purchased many years ago and has no salvage value or other use. The allocated general overhead represents fixed costs of the entire company. If the outside supplier's offer were accepted, only $22,600 of these allocated general overhead costs would be avoided. Required: a. Prepare a report that shows the financial impact of buying part 467 from the supplier rather than continuing to make it inside the company. b. Which alternative should the company choose? Complete this question by entering your answers in the tabs below. Required A Required B Which alternative should the company choose? The total cost of the "make" alternative is by Therefore, the company should the part.
