Make-or-Buy, Traditional Analysis Wehner Company is currently manufacturing Part ABS-43, producing 53,300 units annually. The part is used in the production of several products made by Wehner. The cost per unit for ABS-43 is as follows: Direct materials $45.95 Direct labor 10.50 Variable overhead 3.65 Fixed overhead 3.85 Total $63.95 Of the total fixed overhead assigned to ABS-43, $11,086 is direct fixed overhead (the annual lease cost of machinery used to manufacture Part ABS-43), and the remainder is common fixed overhead. An outside supplier has offered to sell the part to Wehner for $59.99. There is no alternative use for the facilities currently used to produce the part. No significant non-unit-based overhead costs are incurred. Required: 1. Should Wehner Company make or buy Part ABS-43? Wehner should make the part. This will produce total cost savings of $____________ 2. What is the maximum amount per unit that Wehner would be willing to pay to an outside supplier? Round your answer to the nearest cent.
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
Make-or-Buy, Traditional Analysis
Wehner Company is currently manufacturing Part ABS-43, producing 53,300 units annually. The part is used in the production of several products made by Wehner. The cost per unit for ABS-43 is as follows:
| Direct materials | $45.95 |
| Direct labor | 10.50 |
| Variable |
3.65 |
| Fixed overhead | 3.85 |
| Total | $63.95 |
Of the total fixed overhead assigned to ABS-43, $11,086 is direct fixed overhead (the annual lease cost of machinery used to manufacture Part ABS-43), and the remainder is common fixed overhead. An outside supplier has offered to sell the part to Wehner for $59.99. There is no alternative use for the facilities currently used to produce the part. No significant non-unit-based overhead costs are incurred.
Required:
1. Should Wehner Company make or buy Part ABS-43?
Wehner should make the part. This will produce total cost savings of $____________
2. What is the maximum amount per unit that Wehner would be willing to pay to an outside supplier? Round your answer to the nearest cent.
$_____________
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