White planned to use $82 of material per unit but actually used $80 of material

Question

White planned to use $82 of material per unit but actually used $80 of material per unit, and planned to make 1,200 units but actually made 1,000 units. The flexible-budget variance is (Points : 5)      

$2,000 favorable.
      $14,000 unfavorable.
      $16,400 unfavorable.
      $2,400 favorable.

Collier Bicycles has been manufacturing its own wheels for its bikes. The company is operating at 100% capacity, and variable manufacturing overhead is charged to production at the rate of 30% of direct labor cost. The direct materials and direct labor cost per unit to make the wheels are $1.50 and $1.80, respectively. Normal production is 200,000 wheels per year.

A supplier offers to make the wheels at a price of $4 each. If the bicycle company accepts this offer, all variable manufacturing costs will be eliminated, but the $42,000 of fixed manufacturing overhead being charged to the wheels will have to be absorbed by other products.

a.    Prepare an incremental analysis for the decision to make or buy the wheels.

b.    Should Collier Bicycles buy the wheels from the outside supplier? Justify your answer.

Explanation / Answer

1) c $16,400 unfavorable.

2) a) cost if not buy = 200000(1.5+1.8) + .3*200000*1.8 +42000 = 810000

cost if buy = 42000 + 200000*4 = 842000

b) so they must not buy from other supplier

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