2. Composite Company produces 2,000 parts per year, which are used in the assembly of one of its products. The unit product cost of these parts is: Variable manufacturing cost $64 Fixed manufacturing cost 36 Unit product cost $100 The part can be purchased from an outside supplier at $80 per unit. If the part is purchased from the outside supplier, two-thirds of the fixed manufacturing costs can be eliminated. (a) What costs, if any, are relevant to this decision? Which costs are irrelevant? (b) What would the annual impact on the company's net operating income be as a result of buying the part from the outside supplier? (7+7)
2. Composite Company produces 2,000 parts per year, which are used in the assembly of one of its products. The unit product cost of these parts is: Variable manufacturing cost $64 Fixed manufacturing cost 36 Unit product cost $100 The part can be purchased from an outside supplier at $80 per unit. If the part is purchased from the outside supplier, two-thirds of the fixed manufacturing costs can be eliminated. (a) What costs, if any, are relevant to this decision? Which costs are irrelevant? (b) What would the annual impact on the company's net operating income be as a result of buying the part from the outside supplier? (7+7)
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
J1
Transcribed Image Text:2. Composite Company produces 2,000 parts per year, which are used in the assembly of one of its
products. The unit product cost of these parts is:
Variable manufacturing cost
$64
Fixed manufacturing cost
36
Unit product cost
$100
The part can be purchased from an outside supplier at $80 per unit. If the part is purchased from the
outside supplier, two-thirds of the fixed manufacturing costs can be eliminated.
(a) What costs, if any, are relevant to this decision? Which costs are irrelevant?
(b) What would the annual impact on the company's net operating income be as a result of buying the
part from the outside supplier?
(7+7)
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