Wolley Inc. uses part A68 in one of its products. The company's Accounting Department reports the following annual costs of producing the 10,000 units of the part. Total Cost Direct materials $ 95,000 Direct labor $ 60,000 Variable manufacturing overhead $ 25,000 Variable selling & administrative expense $ 5,000 Fixed manufacturing overhead $ 15,000 An outside supplier has offered to make the part and sell it to the company for $23 each. If the outside supplier's offer were accepted, $3,000 of fixed manufacturing overhead would be avoided. In addition, the capacity used to produce part A68 could be used to make an additional income of $45,000 per year from producing a different product. Required: Based on this information, would Wolley be financially better off to continue making the A68 or to buy them from the outside supplier?
Wolley Inc. uses part A68 in one of its products. The company's Accounting Department reports the following annual costs of producing the 10,000 units of the part.
|
|
Total Cost |
|
|
Direct materials |
$ |
95,000 |
|
Direct labor |
$ |
60,000 |
|
Variable manufacturing |
$ |
25,000 |
|
Variable selling & administrative expense |
$ |
5,000 |
|
Fixed manufacturing overhead |
$ |
15,000 |
An outside supplier has offered to make the part and sell it to the company for $23 each. If the outside supplier's offer were accepted, $3,000 of fixed manufacturing overhead would be avoided. In addition, the capacity used to produce part A68 could be used to make an additional income of $45,000 per year from producing a different product.
Required:
Based on this information, would Wolley be financially better off to continue making the A68 or to buy them from the outside supplier?
Step by step
Solved in 2 steps
