Collins Co. produces a part used in the manufacture of one of its products. The unit product cost is $40, computed as follows: Direct materials, direct labor, and variable overhead $24 Fixed overhead $16 Total $40 An outside supplier has offered to provide the parts for only $30 each. If the parts are purchased from the outside supplier, (1) the company estimates that 25% of the fixed overhead cost above could be eliminated; (2) the company can use the freed capacity to launch a new product, earning a contribution margin of $5 per unit. Based on these data, the per-unit dollar financial advantage or disadvantage of purchasing from the outside supplier would be: Multiple Choice a)$7 financial disadvantage b)$8 financial advantage c)$2 financial disadvantage d)$3 financial advantage
Collins Co. produces a part used in the manufacture of one of its products. The unit product cost is $40, computed as follows: Direct materials, direct labor, and variable overhead $24 Fixed overhead $16 Total $40 An outside supplier has offered to provide the parts for only $30 each. If the parts are purchased from the outside supplier, (1) the company estimates that 25% of the fixed overhead cost above could be eliminated; (2) the company can use the freed capacity to launch a new product, earning a contribution margin of $5 per unit. Based on these data, the per-unit dollar financial advantage or disadvantage of purchasing from the outside supplier would be: Multiple Choice a)$7 financial disadvantage b)$8 financial advantage c)$2 financial disadvantage d)$3 financial advantage
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Collins Co. produces a part used in the manufacture of one of its products. The unit product cost is $40, computed as follows:
|
Direct materials, direct labor, and variable |
$24 |
|
Fixed overhead |
$16 |
|
Total |
$40 |
An outside supplier has offered to provide the parts for only $30 each. If the parts are purchased from the outside supplier, (1) the company estimates that 25% of the fixed overhead cost above could be eliminated; (2) the company can use the freed capacity to launch a new product, earning a contribution margin of $5 per unit. Based on these data, the per-unit dollar financial advantage or disadvantage of purchasing from the outside supplier would be:
Multiple Choice
a)$7 financial disadvantage
b)$8 financial advantage
c)$2 financial disadvantage
d)$3 financial advantage
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