Recher Corporation uses part Q89 in one of its products. The company\'s Accounti
ID: 2589235 • Letter: R
Question
Recher Corporation uses part Q89 in one of its products. The company's Accounting Department reports the following costs of producing the 7,400 units of the part that are needed every year.
PER UNIT
Direct materials
An outside supplier has offered to make the part and sell it to the company for $29.00 each. If this offer is accepted, the supervisor's salary and all of the variable costs, including direct labor, can be avoided. The special equipment used to make the part was purchased many years ago and has no salvage value or other use. The allocated general overhead represents fixed costs of the entire company. If the outside supplier's offer were accepted, only $2,400 of these allocated general overhead costs would be avoided. In addition, the space used to produce part Q89 could be used to make more of one of the company's other products, generating an additional segment margin of $15,900 per year for that product.
Required:
a. Prepare a report that shows the financial impact of buying part Q89 from the supplier rather than continuing to make it inside the company.
b. Which alternative should the company choose?
The total cost of the "make" alternative is (higher or lower?) by ???. Therefore the company should (buy or make?) the part
PER UNIT
Direct materials
$ 8.20 Direct labor $ 4.60 Variable overhead $ 9.10 Supervisor's salary $ 3.50 Depreciation of special equipment $ 3.00 Allocated general overhead $ 1.60Explanation / Answer
a. Prepare a report that shows the financial impact of buying part Q89 from the supplier rather than continuing to make it inside the company.
B) Company should choose make alternative because it give higher net income by (214600-206260) = 8340.
Therefore company should make the part.
Make Buy Diret Materials 60680 Direct Labor 34040 Variable overhead 67340 Supervisor's salary 25900 Allocated general overhead 2400 Outstanding Purchase cost 214600 opportunity cost 15900 total cost 206260 214600Related Questions
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