Reading Corporation uses part W66 in one of its products. The company's Accounting Department reports the following costs of producing the 4,000 units of the part that are needed every year. Direct materials Direct labour Variable overhead Supervisor's salary Depreciation of special equipment Allocated general overhead Required: ii. Per Unit $2.80 $6.30 $8.50 An outside supplier has offered to make the part and sell it to the company for $32.30 each. If this offer is accepted, the supervisor's salary and all of the variable costs, including direct labour, can be avoided. The special equipment used to make the part was purchased many years ago and has no salvage value or other use. The allocated general overhead represents fixed costs of the entire company. If the outside supplier's offer were accepted, only $4,000 of these allocated general overhead costs would be avoided. In addition, the space used to produce part W66 could be used to make more of one of the company's other products, generating an additional segment margin of $26,000 per year for that product. $2.60 $6.80 $6.10 i. Prepare a report that shows the effect on the company's total net operating income of buying part W66 from the supplier rather than continuing to make it inside company.i the Which alternative should the company choose? (
Reading Corporation uses part W66 in one of its products. The company's Accounting Department reports the following costs of producing the 4,000 units of the part that are needed every year. Direct materials Direct labour Variable overhead Supervisor's salary Depreciation of special equipment Allocated general overhead Required: ii. Per Unit $2.80 $6.30 $8.50 An outside supplier has offered to make the part and sell it to the company for $32.30 each. If this offer is accepted, the supervisor's salary and all of the variable costs, including direct labour, can be avoided. The special equipment used to make the part was purchased many years ago and has no salvage value or other use. The allocated general overhead represents fixed costs of the entire company. If the outside supplier's offer were accepted, only $4,000 of these allocated general overhead costs would be avoided. In addition, the space used to produce part W66 could be used to make more of one of the company's other products, generating an additional segment margin of $26,000 per year for that product. $2.60 $6.80 $6.10 i. Prepare a report that shows the effect on the company's total net operating income of buying part W66 from the supplier rather than continuing to make it inside company.i the Which alternative should the company choose? (
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Concept explainers
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.
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Transcribed Image Text:Reading Corporation uses part W66 in one of its products. The company's Accounting
Department reports the following costs of producing the 4,000 units of the part that are
needed every year.
Direct materials
Direct labour
Variable overhead
Supervisor's salary
Depreciation of special equipment
Allocated general overhead
Required:
ii.
Per Unit
$2.80
An outside supplier has offered to make the part and sell it to the company for $32.30 each. If
this offer is accepted, the supervisor's salary and all of the variable costs, including direct labour,
can be avoided. The special equipment used to make the part was purchased many years ago
and has no salvage value or other use. The allocated general overhead represents fixed costs of
the entire company. If the outside supplier's offer were accepted, only $4,000 of these allocated
general overhead costs would be avoided. In addition, the space used to produce part W66
could be used to make more of one of the company's other products, generating an additional
segment margin of $26,000 per year for that product.
$6.30
$8.50
$2.60
$6.80
$6.10
i.
Prepare a report that shows the effect on the company's total net operating income of
buying part W66 from the supplier rather than continuing to make it inside
company.i
the
Which alternative should the company choose? (
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