Dentech, Inc., uses 11 units of part RM67 each month in the production of dentis
ID: 2448102 • Letter: D
Question
Dentech, Inc., uses 11 units of part RM67 each month in the production of dentistry equipment. The cost of manufacturing one unit of RM67 is the following:
Material handling represents the direct variable costs of the Receiving Department that are applied to direct materials and purchased components on the basis of their cost. This is a separate charge in addition to manufacturing overhead. Dentech’s annual manufacturing overhead budget is one-third variable and two-thirds fixed. Scott Supply, one of Dentech’s reliable vendors, has offered to supply part number RM67 at a unit price of $63,000.
If Dentech purchases the RM67 units from Scott, the capacity Dentech used to manufacture these parts would be idle. Should Dentech decide to purchase the parts from Scott, the unit cost of RM67 would increase (or decrease) by what amount?
Assume Dentech is able to rent out all its idle capacity for $93,000 per month. If Dentech decides to purchase the 11 units from Scott Supply, Dentech’s monthly cost for RM67 would increase (or decrease) by what amount?
Dentech, Inc., uses 11 units of part RM67 each month in the production of dentistry equipment. The cost of manufacturing one unit of RM67 is the following:
Explanation / Answer
Solution:
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Make in house Purchase from Vendor Relevant Cost Direct Material 3,500 Purchase price offered 63,000 Material Handlling 700 Direct Labor 38,000 Variable Manufacturing overhead 19000 Fixed Manufacturing Overhead Irrelevant Total Relevant Cost 61,200 If the unit is purchased the unit price will increase by $ 1,800 ( = 63,000 - 61,200)Related Questions
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