Cruise Company produces a part that is used in the manufacture of one of its pro
ID: 2436268 • Letter: C
Question
Cruise Company produces a part that is used in the manufacture of one of its products. The unit manufacturing costs of this? part, assuming a production level of? 6,300 units, are as? follows:
Direct materials
?$4.10
Direct labor
?$4.40
Variable manufacturing overhead
?$3.30
Fixed manufacturing overhead
?$1.20
Total cost
?$13.00
The fixed overhead costs are unavoidable.
Assume Cruise Company can purchase? 6,300 units of the part from Suri Company for? $14.30 each, and the facilities currently used to make the part could be used to manufacture? 6,300 units of another product that would have an? $9 per unit contribution margin. If no additional fixed costs would be?incurred, what should Cruise Company? do?
Direct materials
?$4.10
Direct labor
?$4.40
Variable manufacturing overhead
?$3.30
Fixed manufacturing overhead
?$1.20
Total cost
?$13.00
The fixed overhead costs are unavoidable.
Explanation / Answer
Differential analysis :
Company should buy the part and used spare capacity to manufacture another product
Make Buy Direct material 25830 Direct labour 27720 Variable manufacturing overhead 20790 Opportunity cost (6300*9) 56700 Purchase cost (6300*14.30) 90090 Total relevant cost 131040 90090Related Questions
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