45, Hill Fabricators manufactures a varioty of parts that the company can use to
ID: 2548449 • Letter: 4
Question
45, Hill Fabricators manufactures a varioty of parts that the company can use to produce motal stud fixtures. The M2 part is a popular universal part used in the production of several other parts at its manufacturing facility in Ohio. At a recent meeting, the managerial accountant reported that11% of its fixed overhead cots assigned to the M2 part will not f Hill Fabricators decides to outsource the production of the M2 part at $45 por unit to its compotitor, Mason Manufacturing. The managerial accountant at Hill Fabricators presented the following data that represents the cost to produce 1,100 units of the M2 part in-house: Hill Fabricators Monthly Analysis: Part M2 Direct materials Direct labor Variable overhead costs Fixed overhead costs 33,000 $4,000 $19,000 $13,000 What are the monthly avoidable costs if Hill Fabricators outsources the production of the M2 part to Mason Manufacturing? What is the change in operating income? What is the per unit cost to produce the M2 part? O A. $50,930, $7,930 decrease; $52.21 O B. $49.500: $10,500 increase: $62.73 oc. s6 1,070:$10,500 decrease; S52.21 O D. $57.430; $7,930 increase: S62.73Explanation / Answer
M2 Avoidable FOH Cost 11% of Cost Outside Supplier Offer 45.00 Relevant 1100 Units PU Direct Material 33000 30.00 Direct Labor 4000 3.64 V OH Cost 19000 17.27 F OH Cost: Avoidable(11%) 1430 1.30 Unavoidable(89%) 11570 Sunk Cost Total 69000 52.21 Total Avoidable Cost: Total PU 52.21 Units 1100 Total Avoidable Cost: 57430 Total Avoidable Cost PU 52.21 Less: Outside Supplier Offer 45.00 Net Operating Benefit 7.21 Units 1100 Total Operating Benefit 7930 Increase Total Cost 69000 Units 1100 Per Unit Cost 62.73 Answer: Total Avoidable Cost: 57430 Total Operating Benefit 7930 Per Unit Cost 62.73 Answer is D
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