Aholt Corporation makes 40,000 units per year of a part it uses in the products it manufactures. The unit product cost of this part is computed as follows: Direct materials Direct labor $11.30 22.70 Variable manufacturing overhead 1.20 Fixed manufacturing overhead Unit product cost 24.70 $59.90 An outside supplier has offered to sell the company all of these parts it needs for $46.20 a 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 in high demand. The additional contribution margin on this other product would be $264,000 per year. If the part were purchased from the outside supplier, all of the direct labor cost of the part would be avoided. However, $21.90 of the fixed manufacturing overhead cost being applied to the part would continue even if the part were purchased from the outside supplier. This fixed manufacturing overhead cost would be applied to the company's remaining products. What is the net total dollar advantage (disadvantage) of purchasing the part rather than making it? $264,000 ($328,000) $548,000 ($64,000)
Aholt Corporation makes 40,000 units per year of a part it uses in the products it manufactures. The unit product cost of this part is computed as follows: Direct materials Direct labor $11.30 22.70 Variable manufacturing overhead 1.20 Fixed manufacturing overhead Unit product cost 24.70 $59.90 An outside supplier has offered to sell the company all of these parts it needs for $46.20 a 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 in high demand. The additional contribution margin on this other product would be $264,000 per year. If the part were purchased from the outside supplier, all of the direct labor cost of the part would be avoided. However, $21.90 of the fixed manufacturing overhead cost being applied to the part would continue even if the part were purchased from the outside supplier. This fixed manufacturing overhead cost would be applied to the company's remaining products. What is the net total dollar advantage (disadvantage) of purchasing the part rather than making it? $264,000 ($328,000) $548,000 ($64,000)
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Aholt Corporation makes 40,000 units per year of a part it uses in the products it manufactures. The
unit product cost of this part is computed as follows:
Direct materials
Direct labor
$11.30
22.70
Variable manufacturing overhead 1.20
Fixed manufacturing overhead
Unit product cost
24.70
$59.90
An outside supplier has offered to sell the company all of these parts it needs for $46.20 a 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 in high demand. The additional contribution margin on this
other product would be $264,000 per year.
If the part were purchased from the outside supplier, all of the direct labor cost of the part would be
avoided. However, $21.90 of the fixed manufacturing overhead cost being applied to the part would
continue even if the part were purchased from the outside supplier. This fixed manufacturing
overhead cost would be applied to the company's remaining products. What is the net total dollar
advantage (disadvantage) of purchasing the part rather than making it?
$264,000
($328,000)
$548,000
($64,000)
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