The company makes 12,000 units of this part each year. The company's Accounting Department reports the following costs of producing the part at this level of activity: Per Unit Direct materials $ 6.30 Direct labor $ 5.70 Variable overhead $ 4.80 Fixed Costs: Supervisor's salary $ 7.00 Depreciation of special equipment $ 8.60 Common fixed overhead $ 7.20 An outside supplier has offered to produce this part and sell it to the company for $37.70 each. If this offer is accepted, the supervisor will be fired. The special equipment used to make the part was purchased many years ago and has no salvage value or other use. If the outside supplier's offer were accepted, common fixed costs would be reduced by $17,000. Now assume that the facilities that had been used to produce part S54 could be used for something else if S54 parts are purchased from an outside supplier. If this is true, would you be more likely or less likely to outsource S54 to the outside contractor?

Question

Business

Randall

26 May, 10:32

The company makes 12,000 units of this part each year. The company's Accounting Department reports the following costs of producing the part at this level of activity: Per Unit Direct materials $ 6.30 Direct labor $ 5.70 Variable overhead $ 4.80 Fixed Costs: Supervisor's salary $ 7.00 Depreciation of special equipment $ 8.60 Common fixed overhead $ 7.20 An outside supplier has offered to produce this part and sell it to the company for $37.70 each. If this offer is accepted, the supervisor will be fired. The special equipment used to make the part was purchased many years ago and has no salvage value or other use. If the outside supplier's offer were accepted, common fixed costs would be reduced by $17,000. Now assume that the facilities that had been used to produce part S54 could be used for something else if S54 parts are purchased from an outside supplier. If this is true, would you be more likely or less likely to outsource S54 to the outside contractor?

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Answers (1)

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Cruella · Answer 1

we will be more likely to outsource S54 to the outside contractor

Explanation:

Calculating the outsource contractor

Make Buy

Direct material 75600

Direct labour 68400

Variable overhead 57600

Supervisor's salary 84000

Allocated general overhead 17000

Purchase cost 452400

Total 302600 452400

The annual financial gain for the company as a result of buying the part from the outsource contractor would be (149800)

we will be more likely to outsource S54 to the outside contractor