Johnson Company currently produces 12,000 units of a special microchip. Current

Question

Johnson Company currently produces 12,000 units of a special microchip. Current unit costs for the microchip are as follows:

Direct materials $100

Direct labor 15

Factory rent 25

Administrative costs 15

General factory overhead (allocated 21

Total $176

If Johnson decides to buy the special microchip, 60% of the administrative costs would be avoided. All of the company’s items, including the special microchip, are manufactured in the same rented production facility. The company has an offer from a wholesaler that wishes to sell the part to Johnson for $145 per unit. What will occur if the company accepts the offer? (Will cost be higher or lower?)

Explanation / Answer

Calculation of the cost of special order Direct Material 100 Direct Labor 15 Admin Cost 6 15*40% Factory Overheads 21 Cost 142 As the cost is less than $ 142 the special microship must be accepted

Related Questions

Navigate

• Browse (All)
• Browse J
• Subjects

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