Exercise 8-10 Your answer is partially correct. Try again. Every year Sheffield

Question

Exercise 8-10 Your answer is partially correct. Try again. 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: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Total $ 5 10 7 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 201,024 Net relevant cost to buy 237,600

Explanation / Answer

ANSWER =1 CALCULATION OF THE RELEAVANT COST TO MAKE Unit Unit Price Total Direct Material 7200 $                        5 $                 36,000 Direct Labour 7200 $                     10 $                 72,000 Variable Manufacturing overhead 7200 $                        7 $                 50,400 Fixed Manufacturing Overhead (40% is relevant) 7200 $                        4 $                 28,800 (40% of $ 10) Total Relevant Cost $             1,87,200 Answer =2 CALCULATION OF THE NET RELEAVNT COST TO BUY PURCHASE COST 7200 $                     34 $             2,44,800 Less: Extra contribution Margin from Manufact Part 240 $               -13,800 Total Relevant Cost to Buy $             2,31,000

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