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Summerford Company manufactures part G for use in its production cycle. The full cost per unit for each of 10,000 units of part G manufactured per year by Summerford are as follows: Direct materials $ 6 Direct labor 11 Variable overhead 7 Fixed overhead 10   $ 34 Verona Company has offered to sell Summerford 10,000 units of part G for $25 per unit. If Summerford accepts Verona's offer, the released facilities could be used to save $45,000 in relevant costs in the manufacture of part H. In addition, $7 per unit of the fixed overhead applied to part G would be eliminated. Based solely on a short-term financial analysis, which alternative is more desirable and by what amount?   Alternative Amount A) Manufacture $ 80,000 B) Manufacture $ 85,000 C) Buy $ 105,000 D) Buy $ 135,000 E) Buy $ 80,000

Summerford Company manufactures part G for use in its production cycle. The full cost per unit for each of 10,000 units of part G manufactured per year by Summerford are as follows: Direct materials $ 6 Direct labor 11 Variable overhead 7 Fixed overhead 10   $ 34 Verona Company has offered to sell Summerford 10,000 units of part G for $25 per unit. If Summerford accepts Verona's offer, the released facilities could be used to save $45,000 in relevant costs in the manufacture of part H. In addition, $7 per unit of the fixed overhead applied to part G would be eliminated. Based solely on a short-term financial analysis, which alternative is more desirable and by what amount?   Alternative Amount A) Manufacture $ 80,000 B) Manufacture $ 85,000 C) Buy $ 105,000 D) Buy $ 135,000 E) Buy $ 80,000

Principles of Cost Accounting
Principles of Cost Accounting
17th Edition
ISBN:9781305087408
Author:Edward J. Vanderbeck, Maria R. Mitchell
Publisher:Edward J. Vanderbeck, Maria R. Mitchell
Chapter10: Cost Analysis For Management Decision Making
Section: Chapter Questions
Problem 15E
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Summerford Company manufactures part G for use in its production cycle. The full cost per unit for each of 10,000 units of part G manufactured per year by Summerford are as follows:

Direct materials $ 6
Direct labor 11
Variable overhead 7
Fixed overhead 10
  $ 34

Verona Company has offered to sell Summerford 10,000 units of part G for $25 per unit. If Summerford accepts Verona's offer, the released facilities could be used to save $45,000 in relevant costs in the manufacture of part H. In addition, $7 per unit of the fixed overhead applied to part G would be eliminated. Based solely on a short-term financial analysis, which alternative is more desirable and by what amount?

  Alternative Amount
A) Manufacture $ 80,000
B) Manufacture $ 85,000
C) Buy $ 105,000
D) Buy $ 135,000
E) Buy $ 80,000
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