7 Supler Corporation produces a part used in the mandacture of one of its produc

Question

7 Supler Corporation produces a part used in the mandacture of one of its products The unit product cost is $21, computed as follows Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead 02)Unit product cost $21 An outside supplier has offered to provide the annual requirement of 7.200 of the parts for only $13 each. The company estimates that 60 overhead cost above could be eliminated if the parts are purchased from the outside supplier Assume that direct labor is an avoidable co data, the financial advantage (disadvantage) of purchasing the parts from the outside supplier would be Mutiple Choice ($2) per unit on average $8) per unit on average up

Explanation / Answer

Relevant cost of manufacturing is only the avoidable cost

Relevant cost = $6 + $8 + $2 + ($5*60%)

= $6 + $8 + $2 + $3 = $19

Outside supplier is ready to provide the product at $13 per unit

benefit of buying from outside = $19 - $13 = $6 per unit

Third option is correct

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