Question
Dentech, Inc., uses 13 units of part RM67 each month in the production of dentistry equipment. The cost of manufacturing one unit of RM67 is
Dentech, Inc., uses 13 units of part RM67 each month in the production of dentistry equipment. The cost of manufacturing one unit of RM67 is the following: |
Direct material | $ | 3,000 | |
Material handling (20% of direct-material cost) | 600 | ||
Direct labor | 34,000 | ||
Manufacturing overhead (150% of direct labor) | 51,000 | ||
|
|
| |
Total manufacturing cost | $ | 88,600 | |
|
|
| |
|
Material handling represents the direct variable costs of the Receiving Department that are applied to direct materials and purchased components on the basis of their cost. This is a separate charge in addition to manufacturing overhead. Dentechs annual manufacturing overhead budget is one-third variable and two-thirds fixed. Scott Supply, one of Dentechs reliable vendors, has offered to supply part number RM67 at a unit price of $55,000. |
Required: | |
1. | If Dentech purchases the RM67 units from Scott, the capacity Dentech used to manufacture these parts would be idle. Should Dentech decide to purchase the parts from Scott, the unit cost of RM67 would increase (or decrease) by what amount? |
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