Boswell Company manufactures two products, Regular and Supreme Boswell s overhea

Question

Boswell Company manufactures two products, Regular and Supreme Boswell s overhead costs consist of machining $3,000.000: and assembling $1,500 000 information on the two products is: Overhead applied to Supreme using activity-based costing is During 2016, it cost Westa, Inc $18 per unit to produce part T5. During 2017. It has increased to $21 per unit in 2017. South side Company has offered to provide Part T5 for $16 per unit to Westa. As it pertains to the make-or-buy decision which statement is true?

Explanation / Answer

In ABC costing we drive the cost as per various drivers . In given question for machining the driver is Machine hours and for assembling it is Number of parts .

Machining cost per machine hour = 3000000/40000 = 75

Assembling cost per number of parts = 1500000/250000 = 6

The cost for supreme is :- Machining = 30000*75 = 2250000

                                      assembling = 160000*6 = 960000

Total cost = 2250000 + 960000 = 3210000

So the answer is A

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