REQUIRED:

The accountant suggested that the manufacturing of part X should be outsourced as the price offered is cheaper than the manufacturing cost per unit of $60 ($300,000/5,000 units). Do you agree with the accountants suggestion? Why?

Q2. McGraw Company uses 5,000 units of Part X each year as a component in the assembly of one of its medical equipment. The company is presently producing Part X internally at a total cost of $300,000, computed as follows: Direct materials. $ 45,000 Direct labor 90,000 30,000 Variable manufacturing overhead ....... Fixed manufacturing overhead.... 135,000 $300,000 Total costs An outside supplier has offered to provide Part X at a price of $54 per unit. Assume that direct labor is a variable cost. If McGraw Company stops producing the part internally, one- third of the fixed manufacturing overhead would be eliminated