Name ______________________________________ Kingston Inc. needs 10,000 units of
ID: 2445848 • Letter: N
Question
Name ______________________________________ Kingston Inc. needs 10,000 units of an electronic part to be used in production. If the company buys the part from Burlington Company instead of making it, Kingston could not use the present facilities for another manufacturing activity. The purchase price of the part is $53 per unit. Sixty percent (60%) of the fixed overhead applied will continue regardless of what decision is made. The following quantitative information is available regarding the unit cost to Kingston to make the part: Direct materials $7 Direct labor 24 Variable overhead 12 Fixed overhead applied 15 Total $58 Please answer the following questions. Justify your answers with computations. 1. In deciding whether to make or buy the part, what is Kingston's total relevant cost to make the part? 2. What alternative is more desirable for Kingston and by what amount? 3. If Kingston needs 5,000 units of the part, how will your answers in 1 and 2 be different? Why?Explanation / Answer
Kingstons total relevant cost
fixed overhead that can be avoided = 15@40% = $6
hence total avoidable cost = $6 * 10,000 = $60,000
2) Make or buy decision
kingston should therefore make the product , the saving in cost is $50,000
3) 5000 units
kingston should buy from outside since less units are not sufficient enough to cover the fixed cost
Relevant cost Direct materials 10,000 *7 $70,000 Direct labor 10,000 *24 $240,000 Variable overhead 10,000 *12 $120,000 Fixed avoidable cost 60,000 total relevant cost $490,000Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.