XYZ Company produces a part that has the following costs per unit: Direct Materi

Question

XYZ Company produces a part that has the following costs per unit: Direct Material $8, Direct Labor $3, Variable Overhead $1, Fixed Overhead $5, Total $17.  ABC Corporation can provide the part to XYZ for $19 per unit. XYZ Company has determined that 60 percent of its fixed overhead would continue if it purchased the part. However, if XYZ no longer produces the part, it can rent that portion of the plant facilities for $60,000 per year.  XYZ Company currently produces 10,000 parts per year. Which alternative is preferable and by what margin? a) Make - $20,000; b) Make - $50,000; c) Buy - $10,000; or d) Buy - $40,000

Explanation / Answer

If company buy this part Company will save 170,000-160,000 = 10,000

Make Meterials 10,000*8 = $80,000 Direct Labour 10,000*3 = $30,000 Overhead Fixed 10,000*5 = $50,000 Variable 10,000*1 = $10,000 Total Costs 80,000+30,000+50,000+10,000 = 170,000 Buy Purchase price 10,000*19 = $190,000 Fixed Cost 50,000*60% = 30,000 Less: Rent amount Received from another company -60,000 Total Cost 190,000+30,000-60,000 = 160,000

Related Questions

Navigate

• Browse (All)
• Browse X
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.