Company X was recently approached by a supplier that would like to sell Company X a part. Company X currently builds the part themselves. The company uses 12,000 of the parts per year. Unit costs for the part at a productions level of 12,000 parts are as follows: Dirèct materials $7.50 Direct labor 4.50 Variable manufacturing overhead 0.30 Fixed manufacturing overhead 2.30 Unit product cost $ 14.60 Of the fixed manufacturing overhead, 30% is avoidable if the component were bought from the outside supplier. Also, making each part uses 2 minutes on the machine that is the company's current constraint. If the component were bought, the machine time freed could be used on product that requires 5 minutes on the same machine and that has a contribution margin of $4 per unit. The supplier is willing to make the part for $12 per unit. Assuming the company does buy the part from the supplier, how would income be impacted? Enter your answer as a positive if income would increase and a negative if it would decrease.

Company X was recently approached by a supplier that would like to sell Company X a part. Company X currently builds the part themselves. The company uses 12,000 of the parts per year. Unit costs for the part at a productions level of 12,000 parts are as follows: Dirèct materials $7.50 Direct labor 4.50 Variable manufacturing overhead 0.30 Fixed manufacturing overhead 2.30 Unit product cost $ 14.60 Of the fixed manufacturing overhead, 30% is avoidable if the component were bought from the outside supplier. Also, making each part uses 2 minutes on the machine that is the company's current constraint. If the component were bought, the machine time freed could be used on product that requires 5 minutes on the same machine and that has a contribution margin of $4 per unit. The supplier is willing to make the part for $12 per unit. Assuming the company does buy the part from the supplier, how would income be impacted? Enter your answer as a positive if income would increase and a negative if it would decrease.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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