Test IV Managerial Accounting December 9, 2017 3 (15 Points) Benentendi Company

Question

Test IV Managerial Accounting December 9, 2017 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: Direct materials Direct labor Variable factory overhead Fixed factory overhead Total $11.25 4.50 1.12 3.15 $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

Differencial analysis Make Buy Cost of asset 18.9 Direct material 11.25 Direct labor 4.5 Variable factory overheads 1.12 Total cost 16.87 18.9 So making is better than buying

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