Question

TB MC Qu. 12-130 Ahrends Corporation makes 70,000 units per year... Abrends Corporation makes 70.000 units per year of a parties in the products and actres Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Unit product cost 17.10 An out de supplier has offered to the company all of these sit needs for $4850 the company accept the other the snow being used to make the part could be used to make more units of a product that in high demand. The additional co m mon this other product would be 1000 per year the part were purchased from the lo w e r cost of the art would be avoided However 20 of the manufactug overhead cost bengaled to the part watcon ven the part were purchased from the deep The feed manufacturing overhead cost would be to the company's ang products What is the fancial advantage advantage of ourchasing the part rather than m o und you medications to 2 decimal places) O snco

Answer 1

Solution:

Cotton Corp.
Particulars	Make	Buy from Outside supplier	Financial advantage (Disadvantage) of Purchasing
Direct Material	$12,46,000	$0	$12,46,000
Direct Labor	$13,30,000	$0	$13,30,000
Variable overhead	$70,000	$0	$70,000
Fixed Overhead	$11,97,000	$5,74,000	$6,23,000
Purchase Price	$0	$33,95,000	-$33,95,000
Opportunity Cost	$2,73,000	$0	$2,73,000
Total Annual Cost	$41,16,000	$39,69,000	$1,47,000

Financial advantage = $147,000