answer Motor Corp. manufactures machine parts for boat engines. The CEO, James H

Question

answer Motor Corp. manufactures machine parts for boat engines. The CEO, James Hamilton, was considering are offer from a subcontractor who would provide 3,000 units of product AB100 for Hamilton for a price $230,000. if Motor Corp. does not parches these parts from the sub contractor it must produce them in-house with the flowing per-unit costs: In addition to the above costs, if Hamilton produces part AB100, be a would incur incremental fixed overhead of $10,000 Required : calculate the relevant costs of producing 3,000 units of products AB100.

Explanation / Answer

The Relevant cost of producing 3000 Units of Product AB100:

Direct Material = 40*3000 = 120000

Direct Labor = 25*3000 = 75000

Variable Overhead Cost = 15*3000 = $ 45000

Incremental Fixed Overhead Cost = $ 10000

Total Relevant cost for producing 3000 Units of Product AB100 = $ 250000

Note : Total Cost of buying = $ 230000

Decision: The company should buy the machine part from sub contractor

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