Assume a company is considering buying 10,000 units of a component part rather than making them. A supplier has agreed to sell the company 10,000 units for a price of $40 per unit. The company's accounting system reports the following costs of making the part Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead, traceable Fixed manufacturing overhead, allocated Total cost Per Unit $ 18 12 2 8 4 $44 10,000 Units per Year $ 180,000 120,000. 20,000 80,000 40,000 $ 440,000 One-half of the traceable fixed manufacturing overhead relates to supervisory salaries and the remainder relates to depreciation of equipment with no salvage value. If the company chooses to buy this component part from a supplier, then the supervisor who oversees production would be discharged. If the company begins buying the part from a supplier, it can use freed up capacity to produce and sell 2,000 more units of another product that earns a contribution margin per unit of $7.00. What is the financial advantage (disadvantage) of buying 10,000 units from the supplier?
Assume a company is considering buying 10,000 units of a component part rather than making them. A supplier has agreed to sell the company 10,000 units for a price of $40 per unit. The company's accounting system reports the following costs of making the part Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead, traceable Fixed manufacturing overhead, allocated Total cost Per Unit $ 18 12 2 8 4 $44 10,000 Units per Year $ 180,000 120,000. 20,000 80,000 40,000 $ 440,000 One-half of the traceable fixed manufacturing overhead relates to supervisory salaries and the remainder relates to depreciation of equipment with no salvage value. If the company chooses to buy this component part from a supplier, then the supervisor who oversees production would be discharged. If the company begins buying the part from a supplier, it can use freed up capacity to produce and sell 2,000 more units of another product that earns a contribution margin per unit of $7.00. What is the financial advantage (disadvantage) of buying 10,000 units from the supplier?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:One-half of the traceable fixed manufacturing overhead relates to supervisory salaries and the remainder relates to depreciation of
equipment with no salvage value. If the company chooses to buy this component part from a supplier, then the supervisor who oversees its
production would be discharged. If the company begins buying the part from a supplier, it can use freed up capacity to produce and sell
2,000 more units of another product that earns a contribution margin per unit of $7.00. What is the financial advantage (disadvantage) of
buying 10,000 units from the supplier?
Multiple Choice
$(6,000)
$(60,000)
$(26,000)
$(32,000)
Transcribed Image Text:Assume a company is considering buying 10,000 units of a component part rather than making them. A supplier has agreed to sell the
company 10,000 units for a price of $40 per unit. The company's accounting system reports the following costs of making the part
Direct materials
Direct labor
Variable manufacturing overhead
Fixed manufacturing overhead, traceable
Fixed manufacturing overhead, allocated
Total cost
Per
Unit
$ 18
12
2
8
4
$44
10,000 units
per Year
$ 180,000
120,000
20,000
80,000
40,000
$ 440,000
One-half of the traceable fixed manufacturing overhead relates to supervisory salaries and the remainder relates to depreciation of
equipment with no salvage value. If the company chooses to buy this component part from a supplier, then the supervisor who oversees its
production would be discharged. If the company begins buying the part from a supplier, it can use freed up capacity to produce and sell
2,000 more units of another product that earns a contribution margin per unit of $7.00. What is the financial advantage (disadvantage) of
buying 10,000 units from the supplier?
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