ABC Inc. has been manufacturing a part. The direct materials cost per unit is $3
ID: 2517158 • Letter: A
Question
ABC Inc. has been manufacturing a part. The direct materials cost per unit is $3; the direct labor cost per unit is $6. Normal production is 3,000 parts per year. Variable manufacturing is charged to production at the rate of 30% of direct labor cost. A supplier offers to make the part for $12.95 per unit. If ABC accepts the supplier's offer, all variable manufacturing costs will be eliminated, but the $19,000 of fixed manufacturing overhead currently being charged to the partls will have to be absorbed by other products. Instructions Prepare the incremental analysis for the decision to make or buy the finials. Assume normal production Should ABC buy the parts or continue to make them? ABC Inc. has been manufacturing a part. The direct materials cost per unit is $3; the direct labor cost per unit is $6. Normal production is 3,000 parts per year. Variable manufacturing is charged to production at the rate of 30% of direct labor cost. A supplier offers to make the part for $12.95 per unit. If ABC accepts the supplier's offer, all variable manufacturing costs will be eliminated, but the $19,000 of fixed manufacturing overhead currently being charged to the partls will have to be absorbed by other products. Instructions Prepare the incremental analysis for the decision to make or buy the finials. Assume normal production Should ABC buy the parts or continue to make them?Explanation / Answer
Prepare incremental analysis :
ABC should continue to make the parts.
Make Buy Direct material 9000 Direct labour 18000 Variable manufacturing overhead 5400 Purchase price 38850 Total 32400 38850