Exam 5-7 C O ezto.mheducation.com/hm.tpx its main product A supplier has offered

Question

Exam 5-7 C O ezto.mheducation.com/hm.tpx its main product A supplier has offered to Bancroft currently manufactures a subcomponent that is used in subcomponents at the following manufacturing costs supply all the subcomponents needed at a price of $122 Bancroft currently produces 20,200 Per unit Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead s 42 32 37 17 Unit cost 128 no altenative uses for the manufacturing capacity, what would be the profit impact of buying the subcomponents from the supplier? s no altemative uses for the manufacturing capacity, what would be the maximum price per unit they would be willing to pay the supplier? per units c. Now assume Bancroft would avoid $322,000 in equipment leases and salaries id were purchased from the supplier Now what would be the profit impact of buying from the i the subcomponent f supplier? Type here to search 00

Explanation / Answer

Cost Relevant to the Decision of Make or Buy: Direct Material 42 Direct Labor 32 Manufacturing OH Variable 37 Total Relevant Cost 111 Note: Manufacturing OH Fixed is not relevant for the decision because it is a Sunk Cost It will Continue to occur if we make or Buy Outside Suppliers Offer Price 122 Total Qty 20200 Since the Relevant Cost is less than Supplier offer price we should make the component ourself A If We Buy the Component: Total Qty 20200 Total Relevant Cost 111 Outside Suppliers Offer Price 122 Loss in Buying over Manufacturing 11 Impact on Profit (Loss from Transaction) 222200 B Maximum Acceptable price is limited to the inhouse relevant cost i.e. 111/- C Loss in Buying over Manufacturing 11 Impact on Profit (Loss from Transaction) 222200 Savings in Cost due to buying 322000 Net Profit will increase by 99800

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