tpx 6 Chapter 16-HW #1 Question 6 fof 6) Save & Ext Subm 10.00 points Exercise 1
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tpx 6 Chapter 16-HW #1 Question 6 fof 6) Save & Ext Subm 10.00 points Exercise 16-15 The make or buy decision LO 2, 3 Lakeview Engine, Inc., produces engines for the watercraft industry. An outside manufacturer has offered to supply several component parts used in the engine assemblies, which ae currently being produced by Lakeview. The supplier will charge Lakeview $325 per engine for the set of parts. Lakeview's current costs for those part sets are direct materials, $155, direct labor, s 70; and manufacturing overhead appled at 100% of direct labor. Var able manufacturing o erhead is considered to be200% of the t tal adfundo ereadilna enge if the part sets are acquired from the outside supplier Required a. What would be the net cost advantage or disadvantage i Lakeview decided to purchase the parts? 37 PM Type here to searchExplanation / Answer
Answer:-
If the parts are purchase from outside supplier then loss in purchase will be=($325- per unit -$295 per unit) =$30 per part
Hence the net cost disadvantages would be $30 per part if Lakeview decided to purchase the part from outside supplier.
Explanation:-In Fixed manufacturing overhead (ie- 80%*$70 per unit= $56 per unit) all the cost will be relevant for decision making, because if the parts are acquired from outside supplier then fixed overhead will not charge hence it is considered as a avoidable cost and relevant for decision making.
Lakeview Engine Inc. Statement of Comparative cost Manufaturing Amount Purchase from outside Supplier Amount Per unit $ Per unit $ Direct Material 155.00 Purchase Cost 325.00 Direct Labor 70.00 Manufacuring Overhead (100 % of Direct Labor) Variable ($70*20%) 14.00 Avoidable Fixed manufacturing overhead ($70*80%) 56.00 Total Manufaturing cost 295.00 Total Purchase cost 325.00Related Questions
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