McGraw Company uses 9.250 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 $155.250, computed as follows: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Total cost An outside supplier has offered to provide Part X at a price of $19.70 per unit. If McGraw Company stops producing the part internally. one-third of the fixed manufacturing overhead would be eliminated. Assume that direct labor is a variable cost. Required: Prepare an analysis showing the annual financial advantage or disadvantage of accepting the outside supplier's offer. Outside purchase Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Total cost $ 27,758 47,000 18,500 62,000 $ 155,250 Make Buy
McGraw Company uses 9.250 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 $155.250, computed as follows: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Total cost An outside supplier has offered to provide Part X at a price of $19.70 per unit. If McGraw Company stops producing the part internally. one-third of the fixed manufacturing overhead would be eliminated. Assume that direct labor is a variable cost. Required: Prepare an analysis showing the annual financial advantage or disadvantage of accepting the outside supplier's offer. Outside purchase Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Total cost $ 27,758 47,000 18,500 62,000 $ 155,250 Make Buy
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Transcribed Image Text:McGraw Company uses 9.250 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 $155.250, computed as follows:
Direct materials
Direct labor
Variable manufacturing overhead
Fixed manufacturing overhead
Total cost
An outside supplier has offered to provide Part X at a price of $19.70 per unit. If McGraw Company stops producing the part internally.
one-third of the fixed manufacturing overhead would be eliminated. Assume that direct labor is a variable cost.
Outside purchase
Direct materials
Direct labor
Required:
Prepare an analysis showing the annual financial advantage or disadvantage of accepting the outside supplier's offer.
Variable manufacturing overhead
Fixed manufacturing overhead
Total cost
$ 27,750
47,000
Make
18,500
62,000
$ 155,250
Buy
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