Aholt Corporation makes 40,000 units per year of a part it uses in the products
ID: 2456722 • Letter: A
Question
Aholt Corporation makes 40,000 units per year of a part it uses in the products it manufactures. The unit product cost of this part is computed as follows:
An outside supplier has offered to sell the company all of these parts it needs for $46.20 a unit. If the company accepts this offer, the facilities now being used to make the part could be used to make more units of a product that is in high demand. The additional contribution margin on this other product would be $264,000 per year.
If the part were purchased from the outside supplier, all of the direct labor cost of the part would be avoided. However, $21.90 of the fixed manufacturing overhead cost being applied to the part would continue even if the part were purchased from the outside supplier. This fixed manufacturing overhead cost would be applied to the company's remaining products.
What is the net total dollar advantage (disadvantage) of purchasing the part rather than making it?
$264,000
($328,000)
$548,000
($64,000)
Direct materials $11.30 Direct labor 22.70 Variable manufacturing overhead 1.20 Fixed manufacturing overhead 24.70 Unit product cost $59.90Explanation / Answer
Relevant Cost of Making
Total Cost of Making = Relevant cost per unit* No of Unit + Oppurtunity contribution margin lost
Total Cost of Making = 38*40000 + 264000
Total Cost of Making = $ 1784000
Total Cost of Buying = 46.20*40000
Total Cost of Buying = $ 1848000
Net total dollar advantage (disadvantage) of purchasing the part rather than making it = Total Cost of Making - Total Cost of Buying
Net total dollar advantage (disadvantage) of purchasing the part rather than making it = 1784000-1848000
Net total dollar advantage (disadvantage) of purchasing the part rather than making it = -64000
Answer
($64,000)
Direct materials 11.30 Direct labor 22.70 Variable manufacturing overhead 1.20 Fixed manufacturing overhead(24.70-21.90) 2.80 Total Relevant cost 38.00Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.