**Ahrends Corporation Cost Analysis**Ahrends Corporation produces 70,000 units per year of a specific part utilized in its manufacturing processes. The unit product cost is determined as follows:- **Direct materials**: $17.80- **Direct labor**: $19.00- **Variable manufacturing overhead**: $1.00- **Fixed manufacturing overhead**: $17.10**Total Unit Product Cost**: $54.90An external supplier has proposed to provide the entire part requirement at $48.50 per unit. Acceptance of this offer allows the company to repurpose its production facilities to increase the output of a high-demand product. This shift is anticipated to generate an additional contribution margin of $273,000 annually.If purchased externally, the following savings and costs would apply:- **Savings**: Complete removal of the direct labor costs for the part.- **Fixed Costs**: $8.20 of the fixed manufacturing overhead would persist even if outsourced, as it would be reallocated to the company’s other products.**Question**: How much of the $54.90 unit cost is pertinent in deciding whether to produce internally or purchase externally? *(Round intermediates to two decimal places.)***Options:**- $37.80 per unitThis assessment focuses on evaluating direct costs and potential profit contributions when considering outsourcing manufacturing elements, aiding in strategic decision-making for production management.

Avoidable fixed manufacturing overhead = total fixed manufacturing overhead - applied fixed…

Ahrends Corporation makes 70,000 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 $ 17.80 Direct labor 19.00 Variable manufacturing overhead Fixed manufacturing overhead 1.00 17.10 Unit product cost $ 54.90 An outside supplier has offered to sell the company all of these parts it needs for $48.50 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 $273,000 per year. If the part were purchased from the outside supplier, all of the direct labor cost of the part would be avoided. However, $8.20 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. How much of the unit product cost of $54.90 is relevant in the decision of whether to make or buy the part? (Round your intermediate calculations to 2 decimal places.) Multiple Choice $37.80 per unit

Ahrends Corporation makes 70,000 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 $ 17.80 Direct labor 19.00 Variable manufacturing overhead Fixed manufacturing overhead 1.00 17.10 Unit product cost $ 54.90 An outside supplier has offered to sell the company all of these parts it needs for $48.50 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 $273,000 per year. If the part were purchased from the outside supplier, all of the direct labor cost of the part would be avoided. However, $8.20 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. How much of the unit product cost of $54.90 is relevant in the decision of whether to make or buy the part? (Round your intermediate calculations to 2 decimal places.) Multiple Choice $37.80 per unit

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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