Overhead is applied on the basis of machine hours; the pinballs require 120,000 machine hours per year. Assuming that none of the fixed costs are avoidable, which of the following alternatives is most cost effective? a.Norrell Novelties, Inc., should buy the pinballs as the analysis shows a $275,000 advantage in favor of buying the part from outside. b.Norrell Novelties, Inc., should make the pinballs as the analysis shows a $150,000 advantage in favor of making the part in house. c.Norrell Novelties, Inc., should make the pinballs as the fixed costs of $10 are not avoidable. d.Norrell Novelties, Inc., should buy the pinballs as the analysis shows a $675,000 advantage in favor of buying the part from outside.
Norrell Novelties, Inc., produces 225,000 units of balls used in its pinball games each year. An outside supplier has offered to supply the pinballs for $27 each. The unit cost of manufacturing the pinballs is calculated as follows:
| Direct materials | $10.00 |
| Direct labor | 12.00 |
| Variable |
8.00 |
| Fixed overhead | 5.00 |
| Total unit cost | $40.00 |
Overhead is applied on the basis of machine hours; the pinballs require 120,000 machine hours per year. Assuming that none of the fixed costs are avoidable, which of the following alternatives is most cost effective?
a.Norrell Novelties, Inc., should buy the pinballs as the analysis shows a $275,000 advantage in favor of buying the part from outside.
b.Norrell Novelties, Inc., should make the pinballs as the analysis shows a $150,000 advantage in favor of making the part in house.
c.Norrell Novelties, Inc., should make the pinballs as the fixed costs of $10 are not avoidable.
d.Norrell Novelties, Inc., should buy the pinballs as the analysis shows a $675,000 advantage in favor of buying the part from outside.
please dont provide image based answers thank you
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
