Tech Solutions Inc. is deciding whether to continue making a component or to buy it from an outside supplier. The company uses 15,000 of the components each year. The unit product cost of the component according to the company's cost accounting system is as follows: Cost Component Direct materials Direct labor Amount $9.50 $6.00 Variable manufacturing overhead $1.80 Fixed manufacturing overhead $4.20 Unit product cost $21.50 Assume that direct labor is a variable cost. Of the fixed manufacturing overhead, 20% is avoidable if the component were bought from the outside supplier. In addition, making the component uses 4 minutes on the machine that is the company's current constraint. If the component were bought, this machine time would be freed up for use on another product that requires 8 minutes on this machine and has a contribution margin of $6.00 per unit. When deciding whether to make or buy the component, what cost of making the component should be compared to the price of buying the component? (Round your intermediate calculations and final answer to 2 decimal places.)

Tech Solutions Inc. is deciding whether to continue making a component or to buy it from an outside supplier. The company uses 15,000 of the components each year. The unit product cost of the component according to the company's cost accounting system is as follows: Cost Component Direct materials Direct labor Amount $9.50 $6.00 Variable manufacturing overhead $1.80 Fixed manufacturing overhead $4.20 Unit product cost $21.50 Assume that direct labor is a variable cost. Of the fixed manufacturing overhead, 20% is avoidable if the component were bought from the outside supplier. In addition, making the component uses 4 minutes on the machine that is the company's current constraint. If the component were bought, this machine time would be freed up for use on another product that requires 8 minutes on this machine and has a contribution margin of $6.00 per unit. When deciding whether to make or buy the component, what cost of making the component should be compared to the price of buying the component? (Round your intermediate calculations and final answer to 2 decimal places.)

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter2: Basic Cost Management Concepts

Section: Chapter Questions

Problem 21E: Ellerson Company provided the following information for the last calendar year: During the year,...

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