Foto Company makes 10,000 units per year of a part it uses inthe products it manufactures. The unit product cost of this part iscomputed as follows:
Directmaterials $ 13.00 Direct labor 20.60 Variable manufacturingoverhead 2.80 Fixed manufacturingoverhead 10.70 Unit product cost $ 47.10
An outside supplier has offered to sell the company all of theseparts it needs for $42.10 a unit. If the company accepts thisoffer, the facilities now being used to make the part could be usedto make more units of a product that is in high demand. Theadditional contribution margin on this other product would be$36,000 per year.
If the part were purchased from the outside supplier, all of thedirect labor cost of the part would be avoided. However, $5.40 ofthe fixed manufacturing overhead cost being applied to the partwould continue even if the part were purchased from the outsidesupplier. This fixed manufacturing overhead cost would be appliedto the company's remaining products.
Required:
a. How much of the unit product cost of $47.10 is relevant inthe decision of whether to make or buy the part? (Round"Per Unit" to 2 decimal places.)
b. What is the financial advantage (disadvantage) of purchasingthe part rather than making it?
c. What is the maximum amount the company should be willing topay an outside supplier per unit for the part if the suppliercommits to supplying all 10,000 units required each year?(Round "Per Unit" to 2 decimal places.)
Foto Company makes 10,000 units per year of a part it uses inthe products it manufactures. The unit product cost of this part iscomputed as follows:
| Directmaterials | $ | 13.00 |
| Direct labor | 20.60 | |
| Variable manufacturingoverhead | 2.80 | |
| Fixed manufacturingoverhead | 10.70 | |
| Unit product cost | $ | 47.10 |
An outside supplier has offered to sell the company all of theseparts it needs for $42.10 a unit. If the company accepts thisoffer, the facilities now being used to make the part could be usedto make more units of a product that is in high demand. Theadditional contribution margin on this other product would be$36,000 per year.
If the part were purchased from the outside supplier, all of thedirect labor cost of the part would be avoided. However, $5.40 ofthe fixed manufacturing overhead cost being applied to the partwould continue even if the part were purchased from the outsidesupplier. This fixed manufacturing overhead cost would be appliedto the company's remaining products.
Required:
a. How much of the unit product cost of $47.10 is relevant inthe decision of whether to make or buy the part? (Round"Per Unit" to 2 decimal places.)
b. What is the financial advantage (disadvantage) of purchasingthe part rather than making it?
c. What is the maximum amount the company should be willing topay an outside supplier per unit for the part if the suppliercommits to supplying all 10,000 units required each year?(Round "Per Unit" to 2 decimal places.)
Related questions
Foulds Company makes 10,000 units per year of a part it uses inthe products it manufactures. The unit product cost of this part iscomputed as follows: |
| Directmaterials | $ | 13.20 |
| Direct labor | 20.80 | |
| Variablemanufacturing overhead | 3.00 | |
| Fixed manufacturingoverhead | 10.90 | |
| Unit productcost | $ | 47.90 |
An outside supplier has offered to sell the company all of theseparts it needs for $42.30 a unit. If the company accepts thisoffer, the facilities now being used to make the part could be usedto make more units of a product that is in high demand. Theadditional contribution margin on this other product would be$39,000 per year. |
If the part were purchased from the outside supplier, all of thedirect labor cost of the part would be avoided. However, $6.40 ofthe fixed manufacturing overhead cost being applied to the partwould continue even if the part were purchased from the outsidesupplier. This fixed manufacturing overhead cost would be appliedto the company's remaining products. |
Required: | |
| a. | How much of the unit product cost of $47.90 is relevant in thedecision of whether to make or buy the part? (Round youranswer to 2 decimal places. Omit the "$" sign in yourresponse.) |
| Relevant cost perunit | $ |
| b. | What is the net total dollar advantage (disadvantage) ofpurchasing the part rather than making it?(Input the amountas a positive value. Omit the "$" sign in yourresponse.) |
| Net (Click toselect)advantagedisadvantage | $ |
| c. | What is the maximum amount the company should be willing to payan outside supplier per unit for the part if the supplier commitsto supplying all 10,000 units required each year? (Roundyour answer to 2 decimal places. Omit the "$" sign in yourresponse.) |
| Maximum acceptablepurchase price per unit | $ |
Foulds Company makes 14,000 units per year of a part it uses inthe products it manufactures. The unit product cost of this part iscomputed as follows: |
| Directmaterials | $ | 13.60 |
| Direct labor | 21.20 | |
| Variablemanufacturing overhead | 3.40 | |
| Fixed manufacturingoverhead | 11.30 | |
| Unit productcost | $ | 49.50 |
An outside supplier has offered to sell the company all of theseparts it needs for $42.70 a unit. If the company accepts thisoffer, the facilities now being used to make the part could be usedto make more units of a product that is in high demand. Theadditional contribution margin on this other product would be$32,200 per year. |
If the part were purchased from the outside supplier, all of thedirect labor cost of the part would be avoided. However, $6.00 ofthe fixed manufacturing overhead cost being applied to the partwould continue even if the part were purchased from the outsidesupplier. This fixed manufacturing overhead cost would be appliedto the company's remaining products. |
Required: | |
| a. | How much of the unit product cost of $49.50 is relevant in thedecision of whether to make or buy the part? (Round youranswer to 2 decimal places. Omit the "$" sign in yourresponse.) |
| Relevant cost perunit | $ |
| b. | What is the net total dollar advantage (disadvantage) ofpurchasing the part rather than making it? (Input theamount as a positive value. Omit the "$" sign in yourresponse.) |
| Net (Click toselect)advantagedisadvantage | $ |
| c. | What is the maximum amount the company should be willing to payan outside supplier per unit for the part if the supplier commitsto supplying all 14,000 units required each year? (Roundyour answer to 2 decimal places. Omit the "$" sign in yourresponse.) |
| Maximum acceptablepurchase price per unit | $ |
Foulds Company makes 5,000 units per year of a part it uses inthe products it manufactures. The unit product cost of this part iscomputed as follows: |
| Directmaterials | $ | 12.00 |
| Direct labor | 19.60 | |
| Variablemanufacturing overhead | 1.80 | |
| Fixed manufacturingoverhead | 9.70 | |
| Unit productcost | $ | 43.10 |
An outside supplier has offered to sell the company all of theseparts it needs for $41.10 a unit. If the company accepts thisoffer, the facilities now being used to make the part could be usedto make more units of a product that is in high demand. Theadditional contribution margin on this other product would be$38,000 per year. |
If the part were purchased from the outside supplier, all of thedirect labor cost of the part would be avoided. However, $6.40 ofthe fixed manufacturing overhead cost being applied to the partwould continue even if the part were purchased from the outsidesupplier. This fixed manufacturing overhead cost would be appliedto the company's remaining products. |
Required: | |
| a. | How much of the unit product cost of $43.10 is relevant in thedecision of whether to make or buy the part? (Round youranswer to 2 decimal places. Omit the "$" sign in yourresponse.) |
| Relevant cost perunit | $ |
| b. | What is the net total dollar advantage (disadvantage) ofpurchasing the part rather than making it? (Input theamount as a positive value. Omit the "$" sign in yourresponse.) |
| Net (Click toselect)advantagedisadvantage | $ |
| c. | What is the maximum amount the company should be willing to payan outside supplier per unit for the part if the supplier commitsto supplying all 5,000 units required each year? (Roundyour answer to 2 decimal places. Omit the "$" sign in yourresponse.) |
| Maximum acceptablepurchase price per unit | $ |
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Wright, Inc. produces three products. Data concerning theselling prices and unit costs of the three products appearbelow: |
Product | |||||||||
| C | D | E | |||||||
| Selling price | $ | 90 | $ | 70 | $ | 100 | |||
| Variable costs | $ | 65 | $ | 55 | $ | 70 | |||
| Fixed costs | 30 | 7 | 27 | ||||||
| Tapping machine time(minutes) | 20 | 6 | 6 | ||||||
Fixed costs are applied to the products on the basis of directlabor hours. Demand for the three products exceeds the company'sproductive capacity. The tapping machine is the constraint, withonly 2,800 minutes of tapping machine time available this week. |
| Required: | |
| a-1. | Calculate the contribution margin per minute for all threeproducts. (Round your answers to 2 decimal places. Omit the"$" sign in your response.) |
| C | D | E | |
| Contribution marginper minute | $ | $ | $ |
| a-2. | Given the tapping machine constraint, which product should beemphasized? Support your answer with appropriate calculations. | ||||||
|
| b. | Assuming that there is still unfilled demand for the productthat the company should emphasize in part (a) above, up to how muchshould the company be willing to pay for an additional hour oftapping machine time? (Omit the "$" sign in yourresponse.) |
| Maximum amount | $ per hour |
