W5 A2 10 - 12

10.

The following standard costs pertain to a component part manufactured by Bor Company: Direct materials $4

Direct labor 10

Manufacturing overhead 40 (+)

Standard cost per unit $54 (=) An outside supplier has offered to supply all of the parts needed by Bor Company for $50 each. The 60% of the manufacturing overhead cost that is fixed would be unaffected by this decision. In the decision to "make or buy," what is the relevant unit cost to make the part internally? A $54 B $38 C $30 D $5

11.

Sardi Inc. is considering whether to continue to make a component or to buy it from an outside supplier. The company uses 17,000 of the components each year. The unit product cost of the component according to the company's cost accounting system is given as follows: Direct materials $8.20

Direct labor 8.30

Variable manufacturing overhead 1.20

Fixed manufacturing overhead 4.30 (+)

Unit product cost $22.00 (=) Assume that direct labor is a variable cost. Of the fixed manufacturing overhead, 70% is avoidable if the component were bought from the outside supplier. In addition, making the component uses 2 minutes on the machine that is the company's current constraint. If the component were bought, this machine time would be freed up for use on another product that requires 4 minutes on the constraining machine and that has a contribution margin of $7.00 per unit. When deciding whether to make or buy the component, what cost of making the component should be compared to the price of buying the component? A $24.21 B $25.50 C $20.71 D $22.00

12.

Rebelo Corporation is presently making part E07 that is used in one of its products. A total of 17,000 units of this part are produced and used every year. The company's Accounting Department reports the following costs of producing the part at this level of activity: Per unit

Direct materials $3.80

Direct labor $3.80

Variable manufacturing overhead $1.10

Supervisors salary $2.50

Depreciation of special equipment $1.40

Allocated general overhead $8.60 An outside supplier has offered to make and sell the part to the company for $20.80 each. If this offer is accepted, the supervisor's salary and all of the variable costs 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, none of which would be avoided if the part were purchased instead of produced internally. If management decides to buy part E07 from the outside supplier rather than to continue making the part, what would be the annual impact on the company's overall net operating income? A net operating income would decline by$6800 per year B net operating income would decline by $163,200 per year C net operating would increase by $163,200 per year D net operating income would increase by $6800 per year