Question
Use the information below to answer the following question(s): Cruise Company produces a part that is used in the manufacture of one of its products.
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Use the information below to answer the following question(s):
Cruise Company produces a part that is used in the manufacture of one of its products. The unit manufacturing costs of this part, assuming a production level of 6,000 units, are as follows:
Direct materials
$4.00
Direct labour
$4.00
Variable manufacturing overhead
$3.00
Fixed manufacturing overhead
$1.00
Total cost
$12.00
The fixed overhead costs are unavoidable.
- Assuming Cruise Company can purchase 6,000 units of the part from Suri Company for $17 each, and the facilities currently used to make the part could be rented out to another manufacturer for $24,000 a year, what should Cruise Company do?
- Make the part and save $6.00 per unit.
- Make the part and save $2.00 per unit.
- Buy the part and save $2.00 per unit.
- Buy the part and save $6.00 per unit.
Assume Cruise Company can purchase 6,000 units of the part from Suri Company for $21.00 each, and the facilities currently used to make the part could be used to manufacture 6,000 units of another product that would have an $8 per unit contribution margin. If no additional fixed costs would be incurred, what should Cruise Company do?
- Make the new product and buy the part to earn an extra $5.00 per unit contribution to profit.
- Make the new product and buy the part to earn an extra $6.00 per unit contribution to profit.
- Continue to make the part to earn an extra $2.00 per unit contribution to profit.
- Continue to make the part to earn an extra $4.00 per unit contribution to profit.
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