Exercise 8-10 Every year Sheffield Industries manufactures 7,200 units of part 2

Question

Exercise 8-10 Every year Sheffield Industries manufactures 7,200 units of part 231 for use in its production cycle. The per unit costs of part 231 are as follows: $ 5 10 Direct materials Direct labor Variable manufacturing overhead7 Fixed manufacturing overhead Total 10 $32 Flintrock, Inc., has offered to sell 7,200 units of part 231 to Sheffield for $33 per unit. If Sheffield accepts Flintrock's offer, its freed-up facilities could be used to earn $13,800 in contribution margin by manufacturing part 240, In addition, Sheffield would eliminate 40% of the fixed overhead applied to part 231 (a) Calculate total relevant cost to make and net cost to buy. Total relevant cost to make s Net relevant cost to buy s

Explanation / Answer

Total relevant cost of make = (5+10+7+4)*7200+13800 = 201000

Net relevant cost of buy = (7200*33) = 237600

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