Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

EXERCISE 12-16 Make or Buy a Component (L03) of its standard line of diesel tractors. The company's unit product cost for the part, based on

image text in transcribed
EXERCISE 12-16 Make or Buy a Component (L03) of its standard line of diesel tractors. The company's unit product cost for the part, based on a pro- For many years, Diehl Company has produced a small electrical part that it uses in the production duction level of 60,000 parts per year, is as follows: on the net operating income of the com- Per Part Total Direct materials Direct labor Variable manufacturing overhead. Fixed manufacturing overhead, traceable Fixed manufacturing overhead, common (allocated on the basis of labor-hours). Unit product cost. $ 4.00 2.75 0.50 3.00 $180,000 2.25 $12.50 $135,000 An outside supplier has offered to supply the electrical parts to the Diehl Company for only $10.00 per part. One-third of the traceable fixed manufacturing cost is supervisory salaries and other costs that can be eliminated if the parts are purchased. The other two-thirds of the traceable fixed manu- facturing costs consist of depreciation of special equipment that has no resale value. Economic depreciation on this equipment is due to obsolescence rather than wear and tear. The decision to buy the parts from the outside supplier would have no effect on the common fixed costs of the company, and the space being used to produce the parts would otherwise be idle. Required: Prepare computations showing how much profits would increase or decrease as a result of purchas- ing the parts from the outside supplier rather than making them inside the company

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

Auditing Theory

Authors: Ian Dennis

1st Edition

1138599700, 978-1138599703

More Books

Students also viewed these Accounting questions

Question

3. Comment on how diversity and equality should be managed.

Answered: 1 week ago

Question

describe the legislation that addresses workplace equality

Answered: 1 week ago