Grey Inc. has been purchasing a component, Z for $85 a unit. The company is curr
ID: 2563068 • Letter: G
Question
Grey Inc. has been purchasing a component, Z for $85 a unit. The company is currently operating at 75% of full capacity, and no significant increase in production is anticipated in the near future. The cost of manufacturing a unit of Z, determined by absorption costing method, is estimated as follows:
Prepare a differential analysis report, dated March 12 of the current year, on the decision to make or buy Part Z.
Grey Inc. has been purchasing a component, Z for $85 a unit. The company is currently operating at 75% of full capacity, and no significant increase in production is anticipated in the near future. The cost of manufacturing a unit of Z, determined by absorption costing method, is estimated as follows:
Direct materials $30 Direct labor 15 Variable factory overhead 26 Fixed factory overhead 10 Total $81Prepare a differential analysis report, dated March 12 of the current year, on the decision to make or buy Part Z.
Explanation / Answer
Dear Student Thank you for using Chegg Please find below the answer and please give thumbs up Statementshowing Computations Paticulars Make Buy Differential Direct Materials 30.00 30.00 Direct Labour 15.00 15.00 Variable Factory overhead 26.00 26.00 Purchase cost 85.00 (85.00) Relevant cost 71.00 85.00 (14.00) Company should make the part as it will result in saving of $14 per part
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