Exercise 17.9 Make-or-Buy, Traditional Analysis Of the total fixed overhead assi
ID: 2462217 • Letter: E
Question
Exercise 17.9
Make-or-Buy, Traditional Analysis
Of the total fixed overhead assigned to ABS-43, $15,400 is direct fixed overhead (the annual lease cost of machinery used to manufacture Part ABS-43), and the remainder is common fixed overhead. An outside supplier has offered to sell the part to Wehner for $58. There is no alternative use for the facilities currently used to produce the part. No significant non-unit-based overhead costs are incurred.
Required:
1. Should Wehner Company make or buy Part ABS-43?
Wehner should - Select your answer -makebuyItem 1 the part. This will produce total cost savings of $ .
2. What is the maximum amount per unit that Wehner would be willing to pay to an outside supplier? Round your answer to the nearest cent.
$ per unit
Explanation / Answer
relevant cost per unit producing part abs -43
direct materials - $ 45.60
direct labour - $ 9.8
variable overhead - $ 2.75
fixed overhead (15,400/55,000)-$ 0.28
total cost per unit- $ 58.43
1) so buy from outside suplier is better than the making
2) maximum amount per unit willing to pay is $ 58.43
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