Part U67 is used in one of Broce Corporation\'s products. The company\'s Account
ID: 2533810 • Letter: P
Question
Part U67 is used in one of Broce Corporation's products. The company's Accounting Department reports the following costs of producing the 15,100 units of the part that are needed every year.
An outside supplier has offered to make the part and sell it to the company for $24.00 each. If this offer is accepted, the supervisor's salary and all of the variable costs, including direct labor, can be avoided. The special equipment used to make the part was purchased many years ago and has no salvage value or other use. The allocated general overhead represents fixed costs of the entire company. If the outside supplier's offer were accepted, only $21,100 of these allocated general overhead costs would be avoided.
Required:
a. Prepare a report that shows the financial impact of buying part U67 from the supplier rather than continuing to make it inside the company.
b. Which alternative should the company choose?
Per Unit Direct materials $ 2.00 Direct labor $ 3.00 Variable overhead $ 5.80 Supervisor's salary $ 6.30 Depreciation of special equipment $ 7.40 Allocated general overhead $ 4.50Explanation / Answer
Dear Student Thank you for using Chegg Please find below the answer Statementshowing Computations Paticulars Make Buy Differential Direct matreials = 15100 * 2 30,200.00 30,200.00 Direct labour =15100 * 3 45,300.00 45,300.00 Variable overhead = 15100 * 5.80 87,580.00 87,580.00 Supervisor salary = 15100*6.30 95,130.00 95,130.00 Allocated general overhead 21,100.00 21,100.00 Purchase cost = 15100*24 362,400.00 (362,400.00) Total relevant cost 279,310.00 362,400.00 (83,090.00) Company should make the part