ABC Manufacturing Corp. is using 10,000 units of part no. 300 as a component to assemble one of its products. It costs the company $18 per unit to produce it internally, computed as follows: Direct materials $ 42,000 Direct labor 51,000 Variable overhead 42,000 Fixed overhead 45,000 Total Cost 180,000 An outside vendor has just offered to supply the part for $16 per unit. If the company stops producing this part, one-third of the fixed overhead would be avoided. Should the company make or buy? ( show calculation to support your decision).
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
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ABC Manufacturing Corp. is using 10,000 units of part no. 300 as a component to assemble one of its products. It costs the company $18 per unit to produce it internally, computed as follows:
|
Direct materials |
$ 42,000 |
|
Direct labor |
51,000 |
|
Variable |
42,000 |
|
Fixed overhead |
45,000 |
|
Total Cost |
180,000 |
An outside vendor has just offered to supply the part for $16 per unit. If the company stops producing this part, one-third of the fixed overhead would be avoided. Should the company make or buy? ( show calculation to support your decision).
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