Calculate net cost to buy if Ayayai leases the manufacturing facilities to anoth

Question

Calculate net cost to buy if Ayayai leases the manufacturing facilities to another company for $8,085 per year.

(My answer was marked as incorrect, 20642, so I need help finding the correct answer and how you calculated it)

Exercise 8-8 (Part Level Submission) The Ayayai Company manufactures 1,249 units of a part that could be purchased from an outside supplier for $14 each. Ayayai's costs to manufacture each part are as follows: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead $3 Total S18 All fixed overhead is unavoidable and is allocated based on direct labor. The facilities that are used to manufacture the part have no alternative uses. (a-b) (c-d) Your answer is partially correct. Try again (c) Calculate net cost to buy if Ayayai leases the manufacturing facilities to another company for $8,085 per yean Net cost to buy $ (d) Would your answer change if Ayayai could lease the manufacturing facilities to another company for $8,085 per year? Yes

Explanation / Answer

c)

Net cost to buy = Total cost paid to outside supplier - Benefits received = 14*1249 - 8085 = 17486 - 8085 = 9401

Fixed manufacturing overhead is irrelevant in decision making because it is unavoidable in nature.

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