Great Company makes 30,000 units per year of a part it uses in the product it manufactures. The unit product cost of this part is computed as follows: Direct Materials Direct Labor Variable Manufacture Overhead Fixed Manufacturing Overhead 15.70 17.50 4.50 14.60 An outside supplier has offered to sell the company all these parts it needs for P51.90 per unit. If the company accepts this offer, the facilities now being used to make the part could be used to make more units of a product that is high demand. The additional contribution margin on this other products would be P219,000 per year. If the part were purchased from the outside supplier, P6.20 of the fixed manufacturing overhead cost being applied to the part would continue. This fixed manufacturing overhead cost would be applied to the company's remaining products.. Required: a. How much of the unit product cost shown above is relevant in the decision of whether to make or to buy the part? b. What is the net total peso advantage (disadvantage) of purchasing the part rather than making it? c. What is the indifference point of making or purchasing the part? :Show proof. d. What is the maximum amount the company should be willing to pay an outside supplier per unit for the part if the supplier commits to supplying all 30,000 units requirements?
Great Company makes 30,000 units per year of a part it uses in the product it manufactures. The unit product cost of this part is computed as follows: Direct Materials Direct Labor Variable Manufacture Overhead Fixed Manufacturing Overhead 15.70 17.50 4.50 14.60 An outside supplier has offered to sell the company all these parts it needs for P51.90 per unit. If the company accepts this offer, the facilities now being used to make the part could be used to make more units of a product that is high demand. The additional contribution margin on this other products would be P219,000 per year. If the part were purchased from the outside supplier, P6.20 of the fixed manufacturing overhead cost being applied to the part would continue. This fixed manufacturing overhead cost would be applied to the company's remaining products.. Required: a. How much of the unit product cost shown above is relevant in the decision of whether to make or to buy the part? b. What is the net total peso advantage (disadvantage) of purchasing the part rather than making it? c. What is the indifference point of making or purchasing the part? :Show proof. d. What is the maximum amount the company should be willing to pay an outside supplier per unit for the part if the supplier commits to supplying all 30,000 units requirements?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Great Company makes 30,000 units per year of a part it uses in the product it manufactures.
The unit product cost of this part is computed as follows:
Direct Materials
Direct Labor
Variable Manufacture Overhead
Fixed Manufacturing Overhead
15.70
17.50
4.50
14.60
An outside supplier has offered to sell the company all these parts it needs for P51.90 per
unit. If the company accepts this offer, the facilities now being used to make the part could
be used to make more units of a product that is high demand. The additional contribution
margin on this other products would be P219,000 per year.
If the part were purchased from the outside supplier, P6.20 of the fixed manufacturing
overhead cost being applied to the part would continue. This fixed manufacturing overhead
cost would be applied to the company's remaining products..
Required:
a. How much of the unit product cost shown above is relevant in the decision of whether to
make or to buy the part?
b. What is the net total peso advantage (disadvantage) of purchasing the part rather than
making it?
c. What is the indifference point of making or purchasing the part? :Show proof.
d. What is the maximum amount the company should be willing to pay an outside supplier
per unit for the part if the supplier commits to supplying all 30,000 units requirements?
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