3. (4 points) Supler Company produces a part used in the manufacture of one of i
ID: 2597904 • Letter: 3
Question
3. (4 points) Supler Company produces a part used in the manufacture of one of its products. The unit product cost is $18, computed as follows: Direct materials $ 9 Direct labor 4 Variable manufacturing overhead 1 Fixed manufacturing overhead 5 Unit product cost $19 An outside supplier has offered to provide the annual requirement of 4,000 of the parts for only $14 each. It is estimated that 60 percent of the fixed overhead cost above could be eliminated if the parts are purchased from the outside supplier. Based on these data, the per-unit dollar advantage or disadvantage of purchasing from the outside supplier would be:
Explanation / Answer
Answer:-The per-unit dollar advantage of purchasing from the outside supplier would be $3 per unit (ie- Manufacturing cost per unit $17 – Purchase cost per unit $14).
Explanation:- 1)-
2)-Fixed overhead 60% part (ie- $3 per unit) is considered as avoidable cost and relevant for decision making.
3)-Remaining part of fixed cost 40% (ie- $2 per unit) is unavoidable fixed cost and not relevant for decision making, it is continue to occur whether product are manufacture or buy from outside supplier.
4)- The financial advantage of purchasing from the outside supplier would be $3 per unit*4000 units =$12000.
Supler Company Statement of comprative cost Manufaturing Amount Purchase from outside Amount Per unit $ Per unit $ Direct Material 9.00 Purchase Cost 14.00 Direct Labor 4.00 Vaiable Manufaturing Overhead 1.00 Fixed Manufaturing overhead avoidable ($5*60%) 3.00 Total Manufaturing cost 17.00 Total Purchase cost 14.00Related Questions
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