Part F77 is used in one of Wilcutt Corporation\'s products. The company\'s accou

Question

Part F77 is used in one of Wilcutt Corporation's products. The company's accounting Department reports the following costs of producing the 8,000 unitsof the part that are needed every year.

Direct Labor

An outside supplier has offered to make the part to sell it to the company for $28.00 each. If this offer is accepted, the supervisors salary and all the variable costs, including direct labor , can be avoided. The special equipment used to make the part was purchased many years ago and has no salvage value or other use. The allocated general overhead represents fixed costs of the entire company. If the outside suppliers offer were accepted, only $10,000 of these allocated general overhaed costs would be avoided (make column).

a. Prepare a report that shows the effect on the company's total net operating income of buying F77 from the supplier rather than continueing to make it inside the company.

b. Which alternative should the company use?

per unit Direct Materials $7.00

Direct Labor

$6.00 Variable overhead $5.60 Supervisors salary $4.70 Depreciation of special equipment $1.50 Allocated general overhead $5.40

Explanation / Answer

Operating Income would decrease by (257,200 - 229,600)=$27,600 if buying F77 from the supplier rather than continueing to make it inside the company.
b.
The company should continueing to make it inside the company.

Make Buy Direct Material 56,000 0 Direct Labour 48,000 0 Variable overhead 44,800 0 Supervisor Salary 37,600 0 Depreciation of special equipment (Not Relevant) 0 0 Allocation General Overhead 43,200 33,200

Related Questions

Navigate

• Browse (All)
• Browse P
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.