Question 3 (30 marks)

A- AAA Company manufactures 38,000 units of a specific part each year for use on its production line. At this level of activity, the cost per unit for the part is:

Direct materials	$	3.10
Direct labor		10.00
Variable manufacturing overhead		2.90
Fixed manufacturing overhead		9.00
Total cost per part	$	25.00

AAA Company received an offer from an outside supplier to sell 38,000 units of this part each year to AAA Company for $21 per part. If AAA Company accepts this offer, the facilities now being used to manufacture this part could be rented to another company at an annual rental of $88,000. However, AAA Company has determined that two-thirds of the fixed manufacturing overhead being applied to this part would continue even if the part were purchased from the outside supplier.

Required:

Should AAA Company accept the suppliers offer? Support your answer by calculating the financial advantage (disadvantage) of buying 38,000 parts from the outside supplier, and explain the reason behind your answer and calculations. (10 Marks)

B- ABC Corporation has estimated the following information for first quarter of 2020 for one of its products:

	January	February	March
Units to be produced	128,000	140,000	152,000
Desired ending inventory of finished goods	30,000	36,000	38,000

The ending inventory at December 2019 was 28,000 units.

Required:

Prepare the Production Budget and the Sales Budget for the first quarter of 2020, assuming selling price per unit is $20. (10 marks)

C- At an activity level of 9,000 machine-hours in a month, XYZ Corporations total variable production cost is $796,500 and its total fixed production cost is $235,290. What would be the total production cost per machine-hour, both fixed and variable, at an activity level of 9,300 machine-hours in a month? (3 Marks)

D- Management of Farah Corporation has asked your help as an intern in preparing some key reports for April. Direct labor cost was $25,000, Total manufacturing costs during April were $176,000. Direct labor cost was 20% of prime cost. Required: Calculate direct material cost and the manufacturing overhead cost. (4 Marks)

E- The following information have been taken from a manufacturing company for the year 2020:

Sales revenues	$98,000
inventory of raw materials January 1, 2020	5,000
inventory of raw materials December 31, 2020	6,000
Purchases of raw materials during 2020	12,000
inventory of work in progress January 1, 2020	8,000
inventory of work in progress December 31, 2020	7,000
inventory of finished goods January 1 2020	16,000
inventory of finished goods December 31, 2020	4,000
Sales returns	1,500
cost of goods produced	56,000
Trade discount allowed	2,500
Cash discount allowed	2,000
Salaries Expense	10,000

Required: Calculate cost of goods sold and gross profit for the year ended December 31, 2020.