The Williams Company currently produces 20,000 units of part B13. Current costs
ID: 2435366 • Letter: T
Question
The Williams Company currently produces 20,000 units of part B13. Current costs for part B13 are as follows:Direct materials $12
Direct labor 9
Factory rent 7
Administrative 6
General factory overhead 7
Total $41
If the company decides to buy part B13, 50% of the administrative costs would be avoided. All of the Williams Company items (including this part) are manufactured in the same rented production facility.
The company has an offer from a wholesaler to purchase the part for $31 per unit. If the company decides to accept the offer:
Answer
the cost for this part will increase by $7 per unit.
the cost for this part will increase by $10 per unit.
the cost for this part will decrease by $10 per unit.
the cost for this part would be the same whether they continue to make it or buy it from an outside supplier.
Explanation / Answer
Answer If the company decide to buy from wholesaler, the saving will be Direct materials $12 Direct labor 9 Administrative 3 General factory overhead 7 Total $31 And this is equal to the offered purchase price. Therefore -- the cost for this part would be the same whether they continue to make it or buy it from an outside supplier.