Cost Accounting - Please kindly help with (2) blanks. Please round when required
ID: 2425672 • Letter: C
Question
Cost Accounting - Please kindly help with (2) blanks. Please round when required!! Please show work :)
Example: Each year, Ingmar Company produces 12,900 units of a component used in microwave ovens. An outside supplier has offered to supply the part for $1.32. The unit cost is:
Round intermediate calculations to the nearest cent. Use rounded answers in subsequent computations, if required.
The alternatives for Ingmar Company are: continue making the component in-house, or purchasing the component from the outside supplier. Assuming that none of the fixed cost is avoidable, determine which alternative is more cost effective: A: Make the component in-house. If Ingmar accepts the offer to purchase from the outside supplier, operating income will be $ **BLANK ANSWER** lower.
Now suppose that Ingmar Company rents machinery capable of making 12,900 units of the component per year and the annual lease cost is $12,900 (this is included in the fixed overhead for the component). The lease can be cancelled whenever Ingmar wants without penalty. The machinery lease cost is relevant . Determine which alternative is more cost effective: A: Purchase from out side supplier. If Ingmar accepts the offer to purchase from the outside supplier, operating income will be $**BLANK ANSWER** higher.
Direct materials $0.72 Direct labor 0.34 Variable overhead 0.15 Fixed overhead 2.22 Total unit cost $3.43Explanation / Answer
1)Relevant Unit cost under Purchase = $1.32
Relevant cost under make = .72+.34+.15 =$ 1.21
Make the product inhouse
If accept the offer to purchase ,operating income will decrease or lower by [12900 * (1.32-1.21) ] = 1419
**Fixed cost is irrelevant sinc unavoidable
2) Savings if purchase from outside supplier = [1.21* 12900] +12900 = 28509
Additional cost = 1.32 * 12900 = 17028
Net savings = 11481
operating income will be higher by 11481