Pitkin Company produces a part used in the manufacture of one of its products. T
ID: 2542509 • Letter: P
Question
Pitkin Company produces a part used in the manufacture of one of its products. The unit product cost of the part is $33, computed as follows:
Direct materials
$12
Direct labor
$8
Variable manufacturing overhead
$3
Fixed manufacturing overhead
$10
Unit product cost
$33
An outside supplier has offered to provide the annual requirement of 10,000 of the parts for only $27 each. The company estimates that 70% of the fixed manufacturing overhead costs above will continue if the parts are purchased from the outside supplier. Based on these data, the per unit dollar advantage or disadvantage of purchasing the parts from the outside supplier would be:
Direct materials
$12
Direct labor
$8
Variable manufacturing overhead
$3
Fixed manufacturing overhead
$10
Unit product cost
$33
An outside supplier has offered to provide the annual requirement of 10,000 of the parts for only $27 each. The company estimates that 70% of the fixed manufacturing overhead costs above will continue if the parts are purchased from the outside supplier. Based on these data, the per unit dollar advantage or disadvantage of purchasing the parts from the outside supplier would be:
$6 advantage $1 advantage $1 disadvantage $4 disadvantageExplanation / Answer
Calculate make or buy :
If purchasing the part from outside supplier the $1 per unit disadvantage.
so answer is c) $1 disadvantage
Make Buy Direct material 12 Direct labour 8 Variable manufacturing overhead 3 Fixed manufacturing overhead 3 Purchase cost 27 Total 26 27