Gordon Corporation produces 1,000 units of a part per year which are used in the

Question

Gordon Corporation produces 1,000 units of a part per year which are used in the assembly of one of its products. The unit cost of producing these parts is: Variable manufacturing cost Fixed manufacturing cost Total manufacturing cost $15 12 $27 The part can be purchased from an outside supplier at $20 per unit. If the part is purchased from the outside supplier, two thirds of the total fixed costs incurred in producing the part can be avoided. The annual financial advantage (disadvantage) for the company as a result of buying the part from the outside supplier would be: Multiple Choice $3,000

Explanation / Answer

In house production

Total cost = 1000units*$27 = 27000

Buy from outside market

Annual financial advantage of buying the part from outside suppliers

= in house production - outside suppliers

= 27000-24000 = 5000$

Particulars Amount Purchase (1000units*20$) 20,000 Add : Fixed Cost (1000units*4{12-12*2/3=4}) 4,000 Total Cost 24,000

Related Questions

Navigate

• Browse (All)
• Browse G
• Subjects

---

---

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