Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Recher Corporation uses part Q89 in one of its products. The company's Accounting Department reports the following costs of producing the 9,900 units of the

Recher Corporation uses part Q89 in one of its products. The company's Accounting Department reports the following costs of producing the 9,900 units of the part that are needed every year.

Per Unit
Direct materials $ 6.30
Direct labor $ 3.50
Variable overhead $ 6.90
Supervisor's salary $ 2.60
Depreciation of special equipment $ 2.20
Allocated general overhead $ 1.20

An outside supplier has offered to make the part and sell it to the company for $22.00 each. If this offer is accepted, the supervisor's salary and all of the variable costs, including direct labor, can be avoided. The special equipment used to make the part was purchased many years ago and has no salvage value or other use. The allocated general overhead represents fixed costs of the entire company. If the outside supplier's offer were accepted, only $4,000 of these allocated general overhead costs would be avoided. In addition, the space used to produce part Q89 could be used to make more of one of the company's other products, generating an additional segment margin of $16,200 per year for that product.

Required:

a. What is the financial advantage (disadvantage) of accepting the outside supplier's offer?

b. Should the company make or buy Q89?

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

Managerial Accounting

Authors: Stacey Whitecotton, Robert Libby, Fred Phillips

3rd edition

77826485, 978-0077722074, 77722078, 978-0077826482

More Books

Students also viewed these Accounting questions

Question

Explain the pages in white the expert taxes

Answered: 1 week ago