Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Balk Company is currently manufacturing Part P119. It produces 52,600 units of Part P119 per year. This part is used in the manufacturing of many
Balk Company is currently manufacturing Part P119. It produces 52,600 units of Part P119 per year. This part is used in the manufacturing of many products produced by Balk. The breakdown of the cost per unit for P119 is shown below. Direct Materials $4.00 Direct Labor $3.50 Variable Overhead $3.00 Fixed Overhead $2.50 Unit Cost $13.00 The fixed overhead cost (at $2.50/unit above) would still remain with the company even if Balk stops manufacturing Part P119. An outside supplier has offered to sell the same part to Balk for $20.00. Currently, there is no alternative use for the capital assets used to produce Part P119. These capital assets will not be sold if the company chooses to buy Part P119. Do not enter dollar signs or commas in the input boxes. Use the negative sign for a negative change in operating income. a) Should Balk Company make or buy Part P119? Cost to Make: $ Cost to Buy: $ Therefore Balk should: b) What is the maximum price Balk should be willing to pay an outside supplier for the part? Maximum Price: $ c) If Balk buys the part for $14 instead of making it, by how much will operating income increase or decrease? Change in operating income: $
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started