Subject: Managerial Accounting

Provide the following Requirement: Show Complete Solution.

EXERCISE 13-9 Make or Buy a Component [L03] For many years, Diehl Company has produced a small electrical part that it uses in the production of its standard line of diesel tractors. The company's unit product cost for the part, based on a production level of 60,000 parts per year, is as follows: Direct materials ........................... $ 400 Direct labor .............................. 2.?5 Variable manufacturing overhead ............. 0.50 Fixed manufacturing overhead. traceable ....... 3 00 $130,000 Fixed manufacturing ouedwead, common (allocated on the basis of labor-hours) ........ 2.25 $135,000 Unit product cost ........................... $12. An outside supplier has offered to supply the electrical parts to the Diehl Company.r for only $10.00 per part. One-third of the traceable xed manufacturing cost is supervisory salaries and other costs that can be eliminated if the parts are purchased. The other two-thirds of the traceable xed manufac- turing costs consist of depreciation of special equipment that has no resale value. Economic deprecia tion on this equipment is due to obsolescence rather than wear and tear. The decision to buy the parts from the outside supplier would have no effect on the common xed costs of the company, and the space being used to produce the parts would otherwise be idle. Required: Prepare computations showing how much prots would increase or decrease as a result of purchasing the parts from the outside supplier rather than making them inside the company