ABC Company manufactures Part A for use in its production cycle. The cost per unit for 5,000 units of Part A is as follows: Direct materials Direct labor Variable overhead 5 Fixed overhead applied 7 2 12 XYZ Company has offered to sell ABC 5,000 units of Part A for 27 per unit. If ABC accepts the offer, some of the facilities presently use to manufacture Part A could be used to help with the manufacture of Part B and thus save 40,000 in relevant costs, and 3 per unit applied to Part A would be totally eliminated. By what amount would net relevant costs be increased or decreased if ABC accepts XYZ's offer?
ABC Company manufactures Part A for use in its production cycle. The cost per unit for 5,000 units of Part A is as follows: Direct materials Direct labor Variable overhead 5 Fixed overhead applied 7 2 12 XYZ Company has offered to sell ABC 5,000 units of Part A for 27 per unit. If ABC accepts the offer, some of the facilities presently use to manufacture Part A could be used to help with the manufacture of Part B and thus save 40,000 in relevant costs, and 3 per unit applied to Part A would be totally eliminated. By what amount would net relevant costs be increased or decreased if ABC accepts XYZ's offer?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Make or Buy
ABC Company manufactures Part A for use in its production cycle. The cost per unit
for 5,000 units of Part A is as follows:
Direct materials
Direct labor
Variable overhead
Fixed overhead applied
2
12
5
XYZ Company has offered to sell ABC 5,000 units of Part A for 27 per unit. If ABC
accepts the offer, some of the facilities presently use to manufacture Part A could be
used to help with the manufacture of Part B and thus save 40,000 in relevant costs,
and 3 per unit applied to Part A would be totally eliminated.
By what amount would net relevant costs be increased or decreased if ABC accepts
XYZ's offer?
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