Chap 12 QZ (QUESTION 4) Part U67 is used in one of Broce Corporation\'s products
ID: 2595273 • Letter: C
Question
Chap 12 QZ (QUESTION 4)
Part U67 is used in one of Broce Corporation's products. The company's Accounting Department reports the following costs of producing the 15,300 units of the part that are needed every year.
An outside supplier has offered to make the part and sell it to the company for $25.00 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 $21,300 of these allocated general overhead costs would be avoided.
Required:
a. Prepare a report that shows the financial impact of buying part U67 from the supplier rather than continuing to make it inside the company.
b. Which alternative should the company choose?
Prepare a report that shows the financial impact of buying part U67 from the supplier rather than continuing to make it inside the company.
Required A
Required B
Which alternative should the company choose?
Per Unit Direct materials $ 2.20 Direct labor $ 3.20 Variable overhead $ 6.00 Supervisor's salary $ 6.50 Depreciation of special equipment $ 7.60 Allocated general overhead $ 4.70Explanation / Answer
Answer:
1
report that shows the financial impact of buying part U67 from the supplier rather than continuing to make it inside
Make
Buy
Direct materials
2.2*15300
33660
Direct labor
3.2*15300
48960
Variable overhead
6*15300
91800
Supervisor's salary
6.5*15300
99450
Depreciation of special equipment
0
Allocated general overhead
21300
Outside purchase price
382500
Total cost
295170
382500
Diffrance=382500-295170
87330
2
he total cost of the "make" alternative isl ower by $ 87330
Therefore, the company should make the part.
Make
Buy
Direct materials
2.2*15300
33660
Direct labor
3.2*15300
48960
Variable overhead
6*15300
91800
Supervisor's salary
6.5*15300
99450
Depreciation of special equipment
0
Allocated general overhead
21300
Outside purchase price
382500
Total cost
295170
382500
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