Excercise 21.2 Wilson Corporation produces a large number of fishing products. T

Question

Excercise 21.2 Wilson Corporation produces a large number of fishing products. The costs per unit of a particular fishing reel are as follows:
Direct materials and direct labor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $9
Variable factory overhead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Fixed factory overhead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
The company recently decided to buy 10,000 fishing reels from another manufacturer for $15 per
unit because “it was cheaper than our cost of $17 per unit.” Evaluate the decision made by Wilson’s
management based on the data given.

Explanation / Answer

Relevant Cost for Buying Decision over Manufacturing: Direct Material & Direct Labor 9.00 Variable FOH 5.00 Fixed FOH 0.00 (Sunk Cost; Fixed Cost) Total Cost 14.00 Supplier's Cost 15.00 Since the relevant cost of Manufacturing is lesser than buying. The company should continue Manufcturing

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