Part U67 is used in one of Broce Corporation\'s products. The company\'s Account
ID: 2581753 • 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 15,200 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 $26.00 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 $21,200 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 $2.10 Direct labor $3.10 Variable overhead $5.90 Supervisor's salary $6.40 Depreciation of special equipment $7.50 Allocated general overhead $4.60 Make Buy Direct materials Direct labor Variable overhead Supervisor's salary Depreciation of special equipment Allocated general overhead Outside purchase price Total costExplanation / Answer
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) Total cost of the make alternative is Lower by $108000. Therefore the company should make the part
Make Buy Direct material 31920 Direct labour 47120 Variable overhead 89680 Dep on special equipment Supervisor's salary 97280 Allocated overhead 21200 Purchase cost 395200 Total 287200 395200