Assume a company is considering buying 10,000 units of a component part rather than making them. A supplier has agreed to sell the company 10,000 units for a price of $40 per unit. The company's accounting system reports the following costs of making the part Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead, traceable Fixed manufacturing overhead, allocated Total cost Per 10,000 Units Unit per Year $ 18 $ 180,000 12 120,000 2 20,000 8 80,000 4 $ 44 40,000 $ 440,000 One-half of the traceable fixed manufacturing overhead relates to supervisory salaries and the remainder relates to depreciation of equipment with no salvage value. If the company chooses to buy this component part from a supplier, then the supervisor who oversees its production would be discharged. If the company begins buying the part from a supplier, it can use freed up capacity to produce and sell 5,000 more units of another product that earns a contribution margin per unit of $15.00. What is the financial advantage (disadvantage) of buying 10,000 units from the supplier?

Assume a company is considering buying 10,000 units of a component part rather than making them. A supplier has agreed to sell the company 10,000 units for a price of $40 per unit. The company's accounting system reports the following costs of making the part Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead, traceable Fixed manufacturing overhead, allocated Total cost Per 10,000 Units Unit per Year $ 18 $ 180,000 12 120,000 2 20,000 8 80,000 4 $ 44 40,000 $ 440,000 One-half of the traceable fixed manufacturing overhead relates to supervisory salaries and the remainder relates to depreciation of equipment with no salvage value. If the company chooses to buy this component part from a supplier, then the supervisor who oversees its production would be discharged. If the company begins buying the part from a supplier, it can use freed up capacity to produce and sell 5,000 more units of another product that earns a contribution margin per unit of $15.00. What is the financial advantage (disadvantage) of buying 10,000 units from the supplier?

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter5: Process Costing

Section: Chapter Questions

Problem 2PB: The following product costs are available for Kellee Company on the production of eyeglass frames:...

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