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17 April, 04:58

Exercise 8-8 (Part Level Submission) The Ayayai Company manufactures 1,249 units of a part that could be purchased from an outside supplier for $14 each. Ayayai's costs to manufacture each part are as follows: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead $3 Total S18 All fixed overhead is unavoidable and is allocated based on direct labor. The facilities that are used to manufacture the part have no alternative uses. (a-b) (c-d) Your answer is partially correct. Try again (c) Calculate net cost to buy if Ayayai leases the manufacturing facilities to another company for $8,085 per yean Net cost to buy $ (d) Would your answer change if Ayayai could lease the manufacturing facilities to another company for $8,085 per year? Yes

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  1. 17 April, 08:04
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    current manufacturing costs for 1,249 units:

    total variable costs (including direct materials, direct labor and variable overhead) per unit = $9 total fixed costs per unit = $9 total costs = $18

    an outside vendor offers to supply the parts at $14 per unit

    all fixed manufacturing costs are unavoidable.

    the net cost to buy if Ayayai is able to lease the manufacturing facilities for $8,085 per year:

    net cost to buy without the lease = (purchase price - variable costs) x 1,249 units = ($14 - $9) x 1,249 = $6,245

    the net cost to buy with the lease = $6,245 - $8,085 = - $1,840, which means that Ayayai would actually save money by purchasing the parts if it is able to lease the facilities.
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