Cardinal Company needs 20,000 units of a certain part to use in its production cycle. The following information is available: Cost of cardinal to make the part: Direct materials$4Direct labor17Variable overhead7Fixed overhead10 $38Cost to buy the part from the Oriole company $42 If Cardinal buys the part from Oriole instead of making it, Cardinal could not use the released facilities in another manufacturing activity. Sixty percent of the fixed overhead applied will continue, regardless of what decision is made.What do you advise to the firm managers: shall the firm buy or make the product?

When a business has to choose between two alternatives one is purchasing from outside and other is…

Answered: Cardinal Company needs 20,000 units of…

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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Cardinal Company needs 20,000 units of a certain part to use in its production cycle. The following information is available:

Cost of cardinal to make the part:
Direct materials	$4
Direct labor	17
Variable overhead	7
Fixed overhead	10
	$38
Cost to buy the part from the Oriole company	$42

If Cardinal buys the part from Oriole instead of making it, Cardinal could not use the released facilities in another manufacturing activity. Sixty percent of the fixed overhead applied will continue, regardless of what decision is made.

What do you advise to the firm managers: shall the firm buy or make the product?

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