### Case Study: Olive Corp. Subcomponent Production Costs**Background:**Olive Corp. manufactures 9,300 subcomponents annually in one of its factories. Below is a detailed breakdown of the unit costs associated with production:| Cost Type | Cost Per Unit ||-------------------------------------|---------------|| Direct materials | $34 || Direct labor | $29 || Variable manufacturing overhead | $24 || Fixed manufacturing overhead | $12 || **Total unit cost** | **$99** |**Scenario:**An outside supplier offers to provide Olive Corp. with the 9,300 subcomponents at a price of $97 per unit. It is important to note that the fixed overhead of the current manufacturing process is unavoidable.**Question:**What is the maximum price Olive Corp. should be willing to pay the outside supplier?**Multiple Choice Options:**- $57- $97- $99**Discussion:**In considering whether to accept the supplier's offer, Olive Corp. should compare the supplier's cost against the avoidable costs of in-house production (direct materials, direct labor, and variable manufacturing overhead). The fixed overhead is not avoidable and should therefore not factor into the comparison.--- In academic settings, this exercise is often used to illustrate decision-making in cost accounting, particularly in make-or-buy decisions.

Name: ### Case Study: Olive Corp. Subcomponent Production Costs**Background
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Description: ### Case Study: Olive Corp. Subcomponent Production Costs**Background:**Olive Corp. manufactures 9,300 subcomponents annually in one of its factories. Below is a detailed breakdown of the unit costs associated with production:| Cost Type

Maximum price to be paid to outside supplier = Relevant cost to make per unitMaximum price to be paid to outside supplier = Direct materials + Direct labor + Variable manufacturing overhead = $34 + $29 + $24 = $87 per unit

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Accounting

Olihe Cop currenty makes 9,300 subcomponents a year in one of its factories. The Per unit 25 $34 Direct materials 29 Direct labor 24 Fariable manufacturing overhead Fized manufactoring overhead 12 Total unit cost $99 untr at a $97 per unit price. Fixed overhead is not avoidable. What is

Olihe Cop currenty makes 9,300 subcomponents a year in one of its factories. The Per unit 25 $34 Direct materials 29 Direct labor 24 Fariable manufacturing overhead Fized manufactoring overhead 12 Total unit cost $99 untr at a $97 per unit price. Fixed overhead is not avoidable. What is

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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