4. A company wants to decide whether to make its materials in-house or to sub-contract production to an external supplier. In the past it has made four materials in-house, but demand in the next year will exceed in-house production capacity of 8,000 units. All four materials are made on the same machines and require the same machine time per unit: machine time is the limiting production factor. The following information is available. Material Units required Variable cost of in-house manufacture Directly attributable fixed cost expenditure Cost of external purchase W 4,000 $8 per unit $5,000 $9 per unit X 2,000 $12 per unit Y 3,000 $9 per unit Z 4,000 $10 per unit $8,000 $6,000 $7,000 $18 per unit $12 per unit $12 per unit Directly attributable fixed costs are fixed cash expenditures that would be saved if production of the material in-house is stopped entirely. If a decision is made solely on the basis of short-term cost considerations, what materials should the company purchase externally?
4. A company wants to decide whether to make its materials in-house or to sub-contract production to an external supplier. In the past it has made four materials in-house, but demand in the next year will exceed in-house production capacity of 8,000 units. All four materials are made on the same machines and require the same machine time per unit: machine time is the limiting production factor. The following information is available. Material Units required Variable cost of in-house manufacture Directly attributable fixed cost expenditure Cost of external purchase W 4,000 $8 per unit $5,000 $9 per unit X 2,000 $12 per unit Y 3,000 $9 per unit Z 4,000 $10 per unit $8,000 $6,000 $7,000 $18 per unit $12 per unit $12 per unit Directly attributable fixed costs are fixed cash expenditures that would be saved if production of the material in-house is stopped entirely. If a decision is made solely on the basis of short-term cost considerations, what materials should the company purchase externally?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Transcribed Image Text:4. A company wants to decide whether to make its materials in-house or to sub-contract production to
an external supplier. In the past it has made four materials in-house, but demand in the next year will
exceed in-house production capacity of 8,000 units. All four materials are made on the same
machines and require the same machine time per unit: machine time is the limiting production factor.
The following information is available.
Material
Units required
Variable cost of
in-house manufacture
Directly attributable
fixed cost expenditure
Cost of external purchase
W
4,000
$8 per unit
$5,000
$9 per unit
X
2,000
$12 per unit
Y
3,000
$9 per unit
Z
4,000
$10 per unit
$8,000
$6,000
$7,000
$18 per unit $12 per unit $12 per unit
Directly attributable fixed costs are fixed cash expenditures that would be saved if production of the
material in-house is stopped entirely.
If a decision is made solely on the basis of short-term cost considerations, what materials should the
company purchase externally?
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