..1 T-Mobile Wi-Fi 5:43 AM angie 2017 Test IV 3 (15 Points) Benentendi Company h
ID: 2590699 • Letter: #
Question
..1 T-Mobile Wi-Fi 5:43 AM angie 2017 Test IV 3 (15 Points) Benentendi Company has been outsourcing a component, Part Q, for $18.90 a unit. Benentendi is currently operating at 70% of capacity and no significant increase in production is anticipated in the near future. The cost of manufacturing a unit of Part Q. determined by absorption costing methods, is estimated as follows: $11.25 4.50 Direct materials Direct labor Variable factory overead .12 Fixed factory overhead Total $20.02 Prepare a differential analysis report, dated December 12 of the current year, on the decision to make or outsource Part Q. The fixed costs will be incurred whether we make or buy the part. Your answer MUST include the cost difference between making and buying the unit, and the words, either MAKE the part or BUY the part. Show all work.Explanation / Answer
Ques 3:
Answer :
Differential Analysis to make or manufacture a unit of Part Q is as follows:
Particulars Make Buy Difference Make as compared to Buy
Purchase price 0 18.90 18.90 Lower
Direct Materials/unit 11.25 0 11.25 Higher
Direct Labour/unit 4.50 0 4.50 Higher
Variable factory overhead/unit 1.12 0 1.12 Higher
Fixed factory overhead/unit 3.15 3.15 0 -
Make / (Buy) 20.02 22.05 2.03 Lower
As the cost to make is lower by $2.03 per unit,
Therefore it will be better to make th part Q instead of buying it.
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