Exercise 17.9 Make-or-Buy, Traditional Analysis Of the total fixed overhead assi

Question

Exercise 17.9
Make-or-Buy, Traditional Analysis

Of the total fixed overhead assigned to ABS-43, $15,400 is direct fixed overhead (the annual lease cost of machinery used to manufacture Part ABS-43), and the remainder is common fixed overhead. An outside supplier has offered to sell the part to Wehner for $58. There is no alternative use for the facilities currently used to produce the part. No significant non-unit-based overhead costs are incurred.

Required:

1. Should Wehner Company make or buy Part ABS-43?
Wehner should

the part. This will produce total cost savings of $ .

2. What is the maximum amount per unit that Wehner would be willing to pay to an outside supplier? Round your answer to the nearest cent.
$ per unit

Explanation / Answer

Statement showing analysis   Particulars Make Buy Diff Direct Materials @45.60    2,508,000.00      2,508,000.00 Direct Labour@9.80        539,000.00         539,000.00 Variable Overhead @2.75        151,250.00         151,250.00 Fixed overhead          15,400.00            15,400.00 Purchase cost@58    3,190,000.00 (3,190,000.00) Total Cost    3,213,650.00    3,190,000.00            23,650.00 It should buy. It will provide savings of $23,650 Total Cost to Make    3,213,650.00 No of units          55,000.00 Maximum Amount that Wehner would be willing to pay to an outside supplier                   58.43

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