Question

ntt company produces a telephone

NTT Company produces a telephone part that is used in the a ct o The unit manufacturing costs of this part nga production level of 5.000 follows: f Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Total cost $14 25 The fixed overhead costs are unavoidable regardless of sourcing oras 549 5-1 Kawai Company has offered to sell 5.000 units of the same part to NTT Company for $36 per unit. What is the relevant costs to NTT? [4pts] 5,000x42 = 245,000 The difference 75 14 25 5,000x61 - 305,000 is 60,000 49 It would cost More if they 5-2 If the company outsources to Kawai, its facilities can be used to produce 3,000 units of a product that can generate a net profit of $6 per unit. Should NTT Company outsource the product? Provide supporting calculations. [6 pts]

Answer 1

The answer has been presented in the supporting sheet. For detailed answer refer to the supporting sheet.

Answer Part 1) Relevant cost per unit of telephone part = direct material + direct labour + variable overheads = 14 +8 +12 = $ 34 Per Unit Relevant cost for 5000 units = 34*5000 = $ 170000 Thus the relevant cost per unit = $ 34 - Relevant cost for 5000 units = $ 170000 - Part 2) Net benefit if the company outsource the telephone part = saving in relevant cost + additional income from 3000 units - Purchase cost -= 170000 + (6*3000) - (36*5000) = = $ 8000 As outsourcing leads to financila advantage to the company of $8000, SO NTT company should outsource the product Answer Yes, NTT should outsource the product