Inc. Corp company manufactures 34,000 units of part T-25 each year. The company's cost per unit for part T-25 is: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Total cost per part $ 3.80 11.00 2.20 6.00 $23.00
Inc. Corp company manufactures 34,000 units of part T-25 each year. The company's cost per unit for part T-25 is: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Total cost per part $ 3.80 11.00 2.20 6.00 $23.00
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
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Transcribed Image Text:Inc. Corp company manufactures 34,000
units of part T-25 each year. The company's
cost per unit for part T-25 is:
Direct materials
Direct labor
Variable manufacturing overhead
Fixed manufacturing overhead
Total cost per part
$ 3.80
11.00
2.20
6.00
$23.00
An outside supplier has offered to sell
34,000 units of part T-25 each year to Inc.
Corp for $21 per unit. If Inc. Corp accepts
this offer, it can rent out the facilities now
being used to manufacture part T-25 to
another company at an annual rental of
$84,000. However, Inc. Corp has calculated
that two-thirds of the fixed manufacturing
overhead being applied to part T-25 will
continue even if the part is bought from
the outside supplier.
What is the financial advantage of
accepting the outside supplier's offer?
multiple choice
$19,000
$14,000
$18,000
$16,000
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