Cruise Company produces a part that is used in the manufacture of one of its pro

Question

Cruise Company produces a part that is used in the manufacture of one of its products. The unit manufacturing costs of this part, assuming a production level of 6,200 units, are as follows $4.5 $4.2 $3.1 Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Total cost The fixed overhead costs are unavoidable. $13.2 sa iri €: @rr Esany has cti Eyg3:1 W3 s::ll E init; tir"gte KwaR Ba1 allltas (aN gtKwan, i @14. what should Cruis Company do? A. Make the part and save $62 per unit. B. Make the part and save $2.5 per unit. ° C. Buy from Sun and save $1.1 per unit. D Make the part and save $10.4 per unit. 0

Explanation / Answer

Computation of Relevant cost of Manufacture per unit

Direct Materials

4.5

Direct Labor

4.2

Variable Manufacturing Overheads

3.1

Total Relevant cost of Manufacture per Unit

11.8

Offer price from the Suri Company

14.3

Savings in making the product (14.30 - 11.80)

2.5

THEREFORE, THE RIGHT ANSWER IS OPTION (B) MAKE THE PART AND SAVE $ 2.5 PER UNIT

Computation of Relevant cost of Manufacture per unit

Direct Materials

4.5

Direct Labor

4.2

Variable Manufacturing Overheads

3.1

Total Relevant cost of Manufacture per Unit

11.8

Offer price from the Suri Company

14.3

Savings in making the product (14.30 - 11.80)

2.5

THEREFORE, THE RIGHT ANSWER IS OPTION (B) MAKE THE PART AND SAVE $ 2.5 PER UNIT

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