Managerial Accounting $4$B

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Test #$4($Chapters $12-14)$

Part $2.$ Problems. There are six problems. Each one is worth the score indicated next to the problem number. Show all work for complete credit. You may attach extra pages if you so desire. Please be NEAT when writing your answers. I cannot grade illegible answers. $(50$ points possible $-$ which includes $10$ bonus points possible$)$

$(10$ points$)$ Fothergill Company makes $40,000$ units per year of a part it uses in the products it manufactures. The unit product cost of this part is computed as follows:

An outside supplier has offered to sell the company all of these parts it needs for $$59\mathrm{.}10$ a unit. If the company accepts this offer, the facilities now being used to make the part could be used to make more units of a product that is in high demand. The additional contribution margin on this other product would be $$390,000$ per year.

If the part were purchased from the outside supplier, all of the direct labor, direct materials and variable manufacturing overhead costs of the part would be avoided. However, $$21\mathrm{.}90$ of the fixed manufacturing overhead cost being applied to the part would continue even if the part were purchased from the outside supplier. This fixed manufacturing overhead cost would be applied to the company's remaining products.

Required: