6. Ramon Corporation makes 18,000 units of part E44 each year. This part is used

Question

6. Ramon Corporation makes 18,000 units of part E44 each year. This part is used in one of the products. The of activity: reports the following costs of producing the part at this level Direct materials Direct labor Per Unit $2.20 $5.40 $7.30 $6.60 An outside supplier has offered to make accepted, the equipment used to make the part was purchased many years ago and has no allocated general overhead accepted, only $5,000 of these allocated general overhead costs would be avoided. In addition, the space used to produce part E44 would be used to make more of one of the company's other products and sell the part to the company for $23.30 each. If this offer is sors salary and all of the variable costs, including direct labor, can be avoided. The special salvage value or other use. The fixed costs of the entire company. If the outside supplier's offer were segment margin of $21,000 per year for that product. What would be the impact on the supplier? A. Net operating income would increase by $21,000 per year B. Net operating income would increase by $18,800 per year. C. Net operating income would decrease by $123,000 per year. D. Net operating income would decrease by $165,000 per year. company's overall net operating income of buying part E44 from the outside a part used in the manufacture of one of its products. The unit product cost is $26, computed as follows: Direct labor Fixed manufacturing overhead Unit product cost An outside supplier has offered to provide the annual requirement of 5,000 of the parts for only $21 each. The compan purchased from the outside supplier. Assume that direct labor is an avoidable cost in this these data, the per-unit dollar advantage or disadvantage of A. $1 B. $5 advantage C.$3 advantage D. $4 disadvantage y estimates that 75% of the fixed manufacturing overhead cost above could be eliminated if the parts are decision. Based on purchasing from the outside supplier would be:

Explanation / Answer

6.

Cost if produced

at factory

Cost if purchased

from outside supplier

Difference

Rate per unit

(18000 * Rate per unit)

(18000 * Rate per unit)

Direct Material

2.20

-39600

Direct labor

5.40

-97200

Variable manufacturing overhead

8.00

-144000

Supervisor's salary

7.30

-131400

Purchase from outside supplier

23.30

-419400

Depreciation

6.60

-118800

-118800

Allocated general overhead

1.80

-32400

-32400

Less: Avoidable in case of outside purchase

(given)

5000

Additional segment margin

(given)

21000

TOTAL COST

-563400

-544600

18800

The impact on overall net operating income of buying part E44 from outside supplier is

B. Net operating income would increase by $18,800 per year.

7.

Cost if produced

at factory

Cost if purchased

from outside supplier

Difference

Rate per unit

Rate per unit

Direct Material

-10

Direct labor

-7

Variable manufacturing overhead

-1

Purchase from outside supplier

-21

Fixed manufacturing overhead

-8

-8

Less: 75% in case of purchase from outside

6

TOTAL COST

-26

-23

3

Per unit dollar advantage of purchasing from outside supplier would be

C. $3 advantage.

Cost if produced

at factory

Cost if purchased

from outside supplier

Difference

Rate per unit

(18000 * Rate per unit)

(18000 * Rate per unit)

Direct Material

2.20

-39600

Direct labor

5.40

-97200

Variable manufacturing overhead

8.00

-144000

Supervisor's salary

7.30

-131400

Purchase from outside supplier

23.30

-419400

Depreciation

6.60

-118800

-118800

Allocated general overhead

1.80

-32400

-32400

Less: Avoidable in case of outside purchase

(given)

5000

Additional segment margin

(given)

21000

TOTAL COST

-563400

-544600

18800

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