( Fouch Company makes 30,000 units per year of a part it uses in the products it manufactures. The unit product cost of this part is computed as follows:
Direct materialAc€¦Ac€¦Ac€¦Ac€¦Ac€¦Ac€¦Ac€¦Ac€¦Ac€¦Ac€¦Ac€¦Ac€¦Ac€¦..$15.70
direct laborAc€¦Ac€¦Ac€¦Ac€¦Ac€¦Ac€¦Ac€¦Ac€¦Ac€¦Ac€¦Ac€¦Ac€¦Ac€¦Ac€¦Ac€¦Ac€¦17.50
variable manufacturing overheadAc€¦Ac€¦Ac€¦Ac€¦Ac€¦Ac€¦ 4.50
Fixed manufacturing overheadAc€¦Ac€¦Ac€¦Ac€¦Ac€¦Ac€¦Ac€¦…14.50
Unit product costAc€¦Ac€¦Ac€¦Ac€¦Ac€¦Ac€¦Ac€¦Ac€¦Ac€¦Ac€¦Ac€¦Ac€¦ 52.30
An outside supplier has offered to sell the company all of these parts it needs for $51.90 a unit. If the company accepts this offer, the facilities now being used to make the part could be used to make more units of a product that is in high demand. The additional contribution margin on this other product would be $219,000 per year.
If the part were purchased from the outside supplier, all of the direct labor cost of the part would be avoided. However, $6.20 of the fixed manufacturing overhead cost being applied to the part would continue even if the part were purchased from the outside supplier. This fixed manufacturing overhead cost would be applied to the company’s remaining products.
Required:
i. How much of the unit product cost of $52.30 is relevant in the decision of whether to make or buy the part?
ii. What is the net total dollar advantage (disadvantage) of purchasing the part rather than making it?
iii. What is the maximum amount the company should be willing to pay an outside supplier per unit for the part if the supplier commits to supplying all 30,000 units required each year?
Delivering a high-quality product at a reasonable price is not enough anymore.
That’s why we have developed 5 beneficial guarantees that will make your experience with our service enjoyable, easy, and safe.
You have to be 100% sure of the quality of your product to give a money-back guarantee. This describes us perfectly. Make sure that this guarantee is totally transparent.
Each paper is composed from scratch, according to your instructions. It is then checked by our plagiarism-detection software. There is no gap where plagiarism could squeeze in.
Thanks to our free revisions, there is no way for you to be unsatisfied. We will work on your paper until you are completely happy with the result.
