Variable 5 14 30,00 0 4. Lincoln Company produces manufacturing costs of this pa

ID: 2577529 • Letter: V

Question

Variable 5 14 30,00 0 4. Lincoln Company produces manufacturing costs of this part, assuming a production level of 5,000 units a part that is used in the manufacture of one of its products. The unit are as follows: Direct materials ufacturing overhead overhead Total cost Erickson Company has offered to sell 5,000 units of the same part to Lincoln Company for $13 per unit. Assuming the company has no other use for its facilities and that the fixed manufacturing costs are unavoidable, what should Lincoln Company do? By how much and in what direction (increase n or decrease) will operating income if the company buys the part from Erickson Company? 6 points sell Cest

Explanation / Answer

cost to manufacture

direct material

direct labor

variable manufacturing overhead

total cost to manufacture

cost to purchase

saving if it is manufacture in the plant

13-12

so it is better to manufacture as it cost 12 per unit and involves savings of 1 per unit

total operating income if unit is purchased

if unit is purchased operating income will decrease by 5000