XYZ Corp. currently produces a part but is looking to reduce costs. Units 20,000 Per Unit Total Cost Direct Materials $ 10 $ 200,000 Direct Labor $ 5 $ 100,000 Mfg. Overhead $ 8 $ 160,000 Total $ 23 $ 460,000 The fixed mfg. overhead includes $75,000 of costs that will continue even if outsourced. If the part is outsourced, the space can be used to make other parts and generate an additional $27,000 of contribution margin. A. Show calculations to determine how much XYZ would consider paying for the part from an outside source.
XYZ Corp. currently produces a part but is looking to reduce costs. Units 20,000 Per Unit Total Cost Direct Materials $ 10 $ 200,000 Direct Labor $ 5 $ 100,000 Mfg. Overhead $ 8 $ 160,000 Total $ 23 $ 460,000 The fixed mfg. overhead includes $75,000 of costs that will continue even if outsourced. If the part is outsourced, the space can be used to make other parts and generate an additional $27,000 of contribution margin. A. Show calculations to determine how much XYZ would consider paying for the part from an outside source.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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XYZ Corp. currently produces a part but is looking to reduce costs.
| Units | 20,000 | |
| Per Unit | Total Cost | |
| Direct Materials | $ 10 | $ 200,000 |
| Direct Labor | $ 5 | $ 100,000 |
| Mfg. |
$ 8 | $ 160,000 |
| Total | $ 23 | $ 460,000 |
The fixed mfg. overhead includes $75,000 of costs that will continue even if outsourced.
If the part is outsourced, the space can be used to make other parts and generate an additional $27,000 of contribution margin.
A. Show calculations to determine how much XYZ would consider paying for the part from an outside source.
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