Aerobill Inc. makes 7,500 units of a part each year. This part is used in one of the company's products. The company's Accounting Department reports the following costs of producing the part at the current production volume: Direct materials $10.25 per unit Direct labor $15.50 per unit Variable overhead $5.90 per unit Supervisor's salary $81,000 per year Depreciation of special $15,500 per year equipment Allocated general $2.10 per unit overhead An outside supplier has offered to make the part for Aerobill and sell it to Aerobill for $41.50 per unit. If this offer is accepted, then the supervisor's salary and all variable costs can be avoided. The special equipment used to make the part was purchased many years ago and has no salvage value or other use. The allocated general overhead represents fixed costs of the entire company and would be reallocated if the part were outsourced. If the part is outsourced, then the space used to produce the pan could be used to make more of one of the company's other products, generating an additional contribution margin of $40,000 per year. What is the annual financial advantage or disadvantage of outsourcing the part to the outside supplier? O $7,125 fınancial advantage O $47,125 fınancial advantage O $73,875 financial disadvantage O $32,875 financial disadvantage O None of the above
Aerobill Inc. makes 7,500 units of a part each year. This part is used in one of the company's products. The company's Accounting Department reports the following costs of producing the part at the current production volume: Direct materials $10.25 per unit Direct labor $15.50 per unit Variable overhead $5.90 per unit Supervisor's salary $81,000 per year Depreciation of special $15,500 per year equipment Allocated general $2.10 per unit overhead An outside supplier has offered to make the part for Aerobill and sell it to Aerobill for $41.50 per unit. If this offer is accepted, then the supervisor's salary and all variable costs can be avoided. The special equipment used to make the part was purchased many years ago and has no salvage value or other use. The allocated general overhead represents fixed costs of the entire company and would be reallocated if the part were outsourced. If the part is outsourced, then the space used to produce the pan could be used to make more of one of the company's other products, generating an additional contribution margin of $40,000 per year. What is the annual financial advantage or disadvantage of outsourcing the part to the outside supplier? O $7,125 fınancial advantage O $47,125 fınancial advantage O $73,875 financial disadvantage O $32,875 financial disadvantage O None of the above
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
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Transcribed Image Text:Aerobill Inc. makes 7,500 units of a part each year. This part is used in one of the company's products. The company's Accounting
Department reports the following costs of producing the part at the current production volume:
Direct materials
$10.25 per unit
Direct labor
$15.50 per unit
Variable overhead
$5.90 per unit
Supervisor's salary
$81,000 per year
Depreciation of special
$15,500 per year
equipment
Allocated general
$2.10 per unit
overhead
An outside supplier has offered to make the part for Aerobill and sell it to Aerobill for $41.50 per unit. If this offer is accepted,
then the supervisor's salary and all variable costs can be avoided. The special equipment used to make the part was purchased
many years ago and has no salvage value or other use. The allocated general overhead represents fixed costs of the entire
company and would be reallocated if the part were outsourced. If the part is outsourced, then the space used to produce the part
could be used to make more of one of the company's other products, generating an additional contribution margin of $40,000
per year. What is the annual financial advantage or disadvantage of outsourcing the part to the outside supplier?
O $7,125 fınancial advantage
O $47,125 fınancial advantage
O $73,875 financial disadvantage
O $32,875 financial disadvantage
O None of the above
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