Exercise 8- The Ayayai Company manufactures 1,053 units of a part that could be

Question

Exercise 8- The Ayayai Company manufactures 1,053 units of a part that could be purchased from an outside supplier for $14 each. Ayayai's costs to manufacture each part are as follows Direct materials Direct labor Variable manufacturing overhead 4 Fixed manufacturing overhead Total $3 $18 All fixed overhead is unavoidable and is allocated based on direct labor. The faclities that are used to manufacture the part have no alternative uses. (a) Caloulate relevant cost to make. Relevent cost to make $ per unit (b) Should Ayayai continue to manufacture the part? (e) Calculate net cost to buy it Ayayai leases the manufacturing facilities to another company for $5,812 per year Net cost to buy s o weould your ansever change 1 Avava could lesse the Ayayal manufacturing facilities to another company for $s,812 per year?

Explanation / Answer

b) Yes Ayayi should continue to manufacture the part because Relevant cost per unit to make the product is $10 per Unit and Purchase cost from Outside vendor is $14

a) Computation of Relevant cost to make Particular Amount Direct Material $3 Direct Labour $3 Variable Manufacturing Overhead $4 Relevant cost per Unit $10

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