. A company is analyzing a make-versus-purchase situation for a component used in several products and the engineering department has developed these data: Option A: Purchase 10,000 items per year at a fixed cost of Php 340 per item. The cost of placing the order is negligible according to the present cost accounting procedure. Option B: Manufacture 10,000 items per year, using available capacity in the factory. Cost estimates are direct materials= Php 200 per item and direct labor = Php 60 per item. Manufacturing overhead is allocated at 200% of direct labor. Based on these data, should the item be purchased or manufacture? (please include the solution for the overhead cost)
. A company is analyzing a make-versus-purchase situation for a component used in several products and the engineering department has developed these data: Option A: Purchase 10,000 items per year at a fixed cost of Php 340 per item. The cost of placing the order is negligible according to the present cost accounting procedure. Option B: Manufacture 10,000 items per year, using available capacity in the factory. Cost estimates are direct materials= Php 200 per item and direct labor = Php 60 per item. Manufacturing overhead is allocated at 200% of direct labor. Based on these data, should the item be purchased or manufacture? (please include the solution for the overhead cost)
Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
14th Edition
ISBN:9781305506381
Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Chapter8: Cost Analysis
Section: Chapter Questions
Problem 5E
Related questions
Question
2. A company is analyzing a make-versus-purchase situation for a component used in several products and the engineering department has developed these data:
Option A: Purchase 10,000 items per year at a fixed cost of Php 340 per item. The cost of placing the order is negligible according to the present cost accounting procedure.
Option B: Manufacture 10,000 items per year, using available capacity in the factory. Cost estimates are direct materials= Php 200 per item and direct labor = Php 60 per item. Manufacturing overhead is allocated at 200% of direct labor.
Based on these data, should the item be purchased or manufacture?
(please include the solution for the overhead cost)
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 2 steps
Recommended textbooks for you
Managerial Economics: Applications, Strategies an…
Economics
ISBN:
9781305506381
Author:
James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics: Applications, Strategies an…
Economics
ISBN:
9781305506381
Author:
James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning