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 asfollows:Direct materialsDirect laborVariable manufacturing overhead.Fixed manufacturing overheadUnit product cost$ 17.8019.001.0017.10$ 54.90An 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 nowbeing 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 otherproduct 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 fixedmanufacturing overhead cost being applied to the part would continue even if the part were purchased from the outside supplier. This fixedmanufacturing overhead cost would be applied to the company's remaining products.What is the financial advantage (disadvantage) of purchasing the part rather than making it? (Round your intermediate calculations to 2 decimalplaces.)Multiple Choice($126,000)О$273,000

Part 2: Explanation Step 1: Calculate the total cost of making the part- Direct materials: $17.80-…

Answered: Ahrends Corporation makes 70,000 units…

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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Han Products manufactures 22,000 units of part S-6 each year for use on its production line. At this level of activity, the cost per unit for part S-6 is: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Total cost per part $ 3.60 10.00 2.40 6.00 $ 22.00 An outside supplier has offered to sell 22,000 units of part S-6 each year to Han Products for $20 per part. If Han Products accepts this offer, the facilities now being used to manufacture part S-6 could be rented to another company at an annual rental of $72,000. However, Han Products has determined that two-thirds of the fixed manufacturing overhead being applied to part S-6 would continue even if part S-6 were purchased from the outside supplier. Required: What is the financial advantage (disadvantage) of accepting the outside supplier's offer?
am. 100.
Scott Corporation produces a part for use in the production of one of its products. The per-unit costs associated with the annual production of 1,000 units of this part are as follows: Direct Materials $10.50 $24.00 Direct labor Variable factory overhead $5.50 Fixed factory overhead $12.00 Total Costs $52.00 $5,000 of the fixed factory overhead costs associated with the production of this product are common fixed costs. Larson Company has offered to sell 1,000 units of the same part to Scott Corporation for $42 per unit. Scott should: Select one: a. buy the part, because this would save $10.00 per unit. X b. buy the part, because this would save the company $5,000 annually. c. make the part, because this would save the company $5,000 annually. d. make the part, because this would save $2.00 per unit.
Mohave Corporation is considering outsourcing production of the umbrella tote bag included with some of its products. The company has received a bid from a supplier in Vietnam to produce 8,700 units per year for $10.00 each. Mohave the following information about the cost of producing tote bags: Direct materials $ 6.00 Direct labor 2.00 Variable manufacturing overhead 1.00 Fixed manufacturing overhead 1.50 Total cost per unit $ 10.50 Mohave determined all variable costs could be eliminated by outsourcing the tote bags, while 70 percent of the fixed overhead cost is unavoidable. At this time, Mohave has no specific use in mind for the space currently dedicated to producing the tote bags. Required: 1) Based on the incremental analysis, should Mohave buy the tote bags or continue making them? 2) Suppose the space Mohave currently uses to make the bags could be utilized by a new product line that would generate $12,000 in annual profits. Recompute the difference in cost…
Jade Ltd. manufactures a product, which regularly sells for $67.75. This product has the following costs per unit at the expected production of 47,500 units: Cost Amount Direct labour $20.00 Direct materials 10.50 Manufacturing overhead (36% is variable) 24.00 The company has the capacity to produce 52,250 units. A wholesaler has offered to pay $77 for 12,000 units. If Jade Ltd. accepts this special order, operating income would increase (decrease) by how much?
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Every year Blue Industries manufactures 7,300 units of part 231 for use in its production cycle. The per unit costs of part 231 are as follows: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Total (a) $3.00 Total relevant cost to make $ 11.00 Net relevant cost to buy $ 8.00 Cullumber, Inc., has offered to sell 7,300 units f part 231 to Blue for $33 per unit. If Blue accepts Cullumber's offer, its freed-up facilities could be used to earn $10,700 in contribution margin by manufacturing part 240. In addition, Blue would eliminate 50% of the fixed overhead applied to part 231. 10.00 $32.00 Calculate total relevant cost to make and net cost to buy.
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Shine Engine Company manufacturers Part A which is used in several of its engine models. Monthly production costs for 1,000 units are as follows: Direct materials sh. 40,000 Direct labour 10,000 Variable overhead costs 30,000 Fixed overhead costs 20,000 Total costs 100,000 It is estimated that 10% of the fixed overhead costs assigned to Part A will no longer be incurred if the company purchases Part A from the outside supplier. The company has the option of purchasing the part from an outside supplier at sh. 85 per…
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