Hayes Inc. provided the following information for the year 2015: What is the uni

Question

Hayes Inc. provided the following information for the year 2015:

What is the unit product cost for the year using absorption costing?

$126

$87

$102

$124

Wheeler Company can produce a product that incurs the following costs per unit: direct materials, $10.10; direct labor, $24.10, and overhead, $16.10. An outside supplier has offered to sell the product to Wheeler for $46.16. If Wheeler buys from the supplier, it will still incur 40% of its overhead cost. Compute the net incremental cost or savings of buying.

$4.92 savings per unit.

$4.92 cost per unit.

$2.30 cost per unit.

$5.52 cost per unit.

$2.30 savings per unit.

Hayes Inc. provided the following information for the year 2015:

Beginning inventory 170 units Units produced 820 units Units sold         869 units Selling price $220/unit Direct materials $42/unit Direct labor $23/unit Variable manufacturing overhead $22/unit Fixed manufacturing overhead $31,980/yr Variable selling/administrative costs $15/unit Fixed selling/administrative costs $22,500/yr

What is the unit product cost for the year using absorption costing?

$126

$87

$102

$124

Wheeler Company can produce a product that incurs the following costs per unit: direct materials, $10.10; direct labor, $24.10, and overhead, $16.10. An outside supplier has offered to sell the product to Wheeler for $46.16. If Wheeler buys from the supplier, it will still incur 40% of its overhead cost. Compute the net incremental cost or savings of buying.

Explanation / Answer

1. Unit Product Cost:

Direct Material $42

Direct labour $23

Variable manufacturing overhead   $22

Fixed manufacturing overhead ($31980 / 820) $39

Unit Product Cost $126

2. Unavoidable cost is irrelevant for decision making hence 40% of overheads shall be ignored while calculated savings / cost.

Cost to Make = $10.1 + 24.1 + (60%*16.10) = $43.86

Cost to buy = $46.16

Net incremental cost = $46.16 - $43.86 = $2.30

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