Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Cougar Computer Corporation currently manufactures the disk drives that it uses in its computers. The costs to produce 5,000 of these disk drives last year

Cougar Computer Corporation currently manufactures the disk drives that it uses in its computers. The costs to produce 5,000 of these disk drives last year were as follows:

Cost per drive

Direct materials

$

12

Direct labor

2

Variable manufacturing overhead

5

Fixed manufacturing overhead

7

Total

$

26

Kidal Electronics has offered to provide Cougar with all of its disk drive needs for $27 per drive. If Cougar accepts this offer, Cougar will be able to use the freed up space to generate an additional $40,000 of income each year to produce more of its computer keyboards. Only $3 per drive of the fixed manufacturing overhead cost above could be avoided. Direct labor is an avoidable cost in this decision.

Based on this information, how much would Cougar be financially better off making the drives or buying the drives from Kidal?

Relevant cost to make and cost savings by buying disk drives would be:

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Night Audit Shenanigans With Winston No Longer Working At The Hotel Luna Is Dealing Without Days Off

Authors: Kentucky Elayne NightHawk

1st Edition

B0BYLVMSV7, 979-8361945702

More Books

Students also viewed these Accounting questions

Question

1. Ask students to include a rationale for their selections.

Answered: 1 week ago