Make or Buy Harper Company incurs a total cost of $270,000 in producing 22,000 u

Question

Make or Buy
Harper Company incurs a total cost of $270,000 in producing 22,000 units of a component needed in the assembly of its major product. The component can be purchased from an outside supplier for $6 per unit. A related cost study indicates that the total cost of the component includes fixed costs equal to 80% of the variable costs involved.

a. Should Harper buy the component if it cannot otherwise use the released capacity? Present your answer in the form of differential analysis.

Use negative sign represent a net disadvantage answer; otherwise do not use negative signs with your answers.

b. What would be your answer to requirement (a) if the released capacity could be used in a project that would generate $19,000 of contribution margin?

Use negative sign represent a net disadvantage answer; otherwise do not use negative signs with your answers.

$Answer

Cost from outside supplier $Answer Variable costs avoided by purchasing Answer Net advantage (disadvantage) to purchase alternative $Answer CLICK HERE TO REVIEW LEARNING OBJECTIVES QUESTION 3 Not complete Points out of 200 Flag question Make or Buy Harper Company incurs a total cost of $270,000 in producing 22,000 units of a component needed in the assembly of its major product. The component can be purchased from an outside supplier for $6 per unit. A related cost study indicates that the total cost of the component includes fixed costs equal to 80% of the variable costs involved. a. Should Harper buy the component if it cannot otherwise use the released capacity? Present your answer in the form of differential analysis. Use negative sign represent a net disadvantage answer; otherwise do not use negative signs with your answers. Cost from outside supplier Variable costs avoided by purchasing Net advantage (disadvantage) to purchase alternative5 b. What would be your answer to requirement (a) if the released capacity could be used in a project that would generate $19,000 of contribution margin? Use negative sign represent a net disadvantage answer; otherwise do not use negative signs with your answers. Cost from outside supplier Variable costs avoided by purchasing Contribution margin generated by new project Net advantage (disadvantage) to purchase alternative Check

Explanation / Answer

a) Decision making :

Total cost = variable cost+fixed cost

270000 = X+.80X

270000 = 1.80X

X(variable cost) = 150000

b) Decision making :

Cost from outside supplier (6*22000) 132000 Variable cost avoided by purchasing 150000 Net advantage (disadvantage) to purchase alternative 18000

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