Recher Corporation uses part Q89 in one of its products. The company's Accounting Department reports the following costs of producing the 8,300 units of the part that are needed every year. Direct materials. Direct labor Variable overhead Supervisor's salary. Depreciation of special equipment Allocated general overhead An outside supplier has offered to make the part and sell it to the company for $30.00 each. If this offer is accepted, the supervisor's salary and all of the variable costs, including direct labor, 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 $4,600 of these allocated general overhead costs would be avoided. In addition, the space used to produce part Q89 could be used to make more of one of the company's other products, generating an additional segment margin of $14,300 per year for that product. Required: a. What is the financial advantage (disadvantage) of accepting the outside supplier's offer? Financial advantage (disadvantage) is b. Should the company make or buy Q89? Per Unit $8.60 $ 4.00 $ 9.50 $ 3.60 $ 3.00 1.60 $ The company should the part.
Recher Corporation uses part Q89 in one of its products. The company's Accounting Department reports the following costs of producing the 8,300 units of the part that are needed every year. Direct materials. Direct labor Variable overhead Supervisor's salary. Depreciation of special equipment Allocated general overhead An outside supplier has offered to make the part and sell it to the company for $30.00 each. If this offer is accepted, the supervisor's salary and all of the variable costs, including direct labor, 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 $4,600 of these allocated general overhead costs would be avoided. In addition, the space used to produce part Q89 could be used to make more of one of the company's other products, generating an additional segment margin of $14,300 per year for that product. Required: a. What is the financial advantage (disadvantage) of accepting the outside supplier's offer? Financial advantage (disadvantage) is b. Should the company make or buy Q89? Per Unit $8.60 $ 4.00 $ 9.50 $ 3.60 $ 3.00 1.60 $ The company should the part.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Recher Corporation uses part Q89 in one of its products. The company's Accounting Department reports the following costs of
producing the 8,300 units of the part that are needed every year.
Direct materials
Direct labor
Variable overhead
Supervisor's salary.
Depreciation of special equipment
Allocated general overhead
An outside supplier has offered to make the part and sell it to the company for $30.00 each. If this offer is accepted, the supervisor's
salary and all of the variable costs, including direct labor, 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 $4,600 of these allocated general overhead costs would be avoided. In
addition, the space used to produce part Q89 could be used to make more of one of the company's other products, generating an
additional segment margin of $14,300 per year for that product.
Required:
a. What is the financial advantage (disadvantage) of accepting the outside supplier's offer?
Financial advantage (disadvantage) is
b. Should the company make or buy Q89?
Per Unit
$8.60
$ 4.00
$ 9.50
$ 3.60
$ 3.00
1.60
$
The company should
the part.
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