Lindon Company uses 5,000 units of Part X each year as a component in the assembly of one of its products. The company is presently producing Part X internally at a total cost of $80,000 as follows: TOTAL PER UNIT $18,000 $ 3.60 Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Total costs $ 80,000 $16.00 An outside supplier has offered to provide Part X at a price of $13 per unit. If Lindon Company stops producing the part internally, one-third of the fixed manufacturing overhead will be eliminated. 20,000 12,000 30,000 4.00 2.40 6.00 • What is the relevant (per unit) cost to continue to "make" the part internally. • Should the company continue to make the part internally or buy the part from the outside supplier? Why or why not? Show your work and label all of your answers.
Lindon Company uses 5,000 units of Part X each year as a component in the assembly of one of its products. The company is presently producing Part X internally at a total cost of $80,000 as follows: TOTAL PER UNIT $18,000 $ 3.60 Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Total costs $ 80,000 $16.00 An outside supplier has offered to provide Part X at a price of $13 per unit. If Lindon Company stops producing the part internally, one-third of the fixed manufacturing overhead will be eliminated. 20,000 12,000 30,000 4.00 2.40 6.00 • What is the relevant (per unit) cost to continue to "make" the part internally. • Should the company continue to make the part internally or buy the part from the outside supplier? Why or why not? Show your work and label all of your answers.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Lindon Company uses 5,000 units of Part X each year as a component in the assembly of one of its
products. The company is presently producing Part X internally at a total cost of $80,000 as follows:
TOTAL
PER UNIT
$18,000
20,000
12,000
Direct materials
Direct labor
Variable manufacturing overhead
Fixed manufacturing overhead
Total costs
$ 80,000
$16.00
An outside supplier has offered to provide Part X at a price of $13 per unit. If Lindon Company stops
producing the part internally, one-third of the fixed manufacturing overhead will be eliminated.
$ 3.60
30,000
4.00
2.40
6.00
• What is the relevant (per unit) cost to continue to "make" the part internally.
• Should the company continue to make the part internally or buy the part from the outside
supplier? Why or why not? Show your work and label all of your answers.
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