Gradebook ORION Downloadable eTextbook CALCULATOR PR?NTER VERSION 4BACK Exercise
ID: 2512391 • Letter: G
Question
Gradebook ORION Downloadable eTextbook CALCULATOR PR?NTER VERSION 4BACK Exercise 8-10 Every year Direct materials Direct labor Variable manufacturing Concord Industries manufactures 10,000 units of part 231 for use in ts production oycle. The per unit costs of part 231 are as followes $ 4 Fixed manufacturing overhead Total 10. units of oart 231 to Concord for $32 per unit. If Concord accepts Flintrock's offer, its freed-up facilities could be used to earm $11,700 in contribution margin by manufacturing part 240. In addition, Concord would eliminate 40% ofthe fed overhead appled to art 231 (a) Calculate total relevant cost to make and net cost to buy. Total relevant cost to make s Net relevant cost to buys (b) Should Concord accept Fintrock's offer? Click if you would like to Show Work for this questioni Open Show Work 8 9 0Explanation / Answer
Solution:
Make or Buy Decision –
At times the firm making a product has receives an option from the market to purchase the product from the market. In such scenarios, firm has to decide whether it should buy or make the product depending upon the relevant costs involved. The relevant costs are the costs which might not occur if they purchase the product.
To determine –
(a). Calculate total relevant cost to make and net cost to buy –
The relevant costs are the cost that will incur only if we purchase the product. As per the information, it is –
Total relevant cost to make = $ 240,000
Now, we will calculate net cost to buy.
Net cost to buy = $ 263,300.
(b) No, Concord should not accept the offer and purchase cost is more than the cost to make the product.
Total relevant cost Costs Per unit Total units Total cost Direct Material 4 10,000 40,000 Direct Labor 9 10,000 90,000 Variable manufacturing overhead 7 10,000 70,000 Fixed cost that will be freed = 40 % 4 10,000 40,000 Total relevant cost 2,40,00Related Questions
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