Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

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.

image text in transcribed

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) 1._(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: Direct materials Direct labor ...... Variable manufacturing overhead. Fixed manufacturing overhead Unit product cost... $23.40 22.30 1.40 24.60 $71.70 An outside supplier has offered to sell the company all of these parts it needs for $59.10 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, $21.90 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: a. How much of the unit product cost of $71.70 is relevant in the decision of whether to make or buy the part? b. What is the net total dollar advantage or (disadvantage) of purchasing the part rather than making it? (remember that the facility could be used to produce a different product if we purchased the parts from the outside). c. What is the maximum amount the company should be willing to pay an outside supplier per unit for the part if the supplier commits to supplying all 40.000 units required each year

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

Step: 3

blur-text-image

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

Finance For Non-Finance People

Authors: Sandeep Goel

2nd Edition

0367185083, 9780367185084

More Books

Students also viewed these Accounting questions

Question

Define intercultural conflict

Answered: 1 week ago