Question

Please read carefully, I've uploaded this twice and gotten the wrong answer both times. Thank you

Exercise 8-10 Every year Bramble Industries manufactures 9,900 units of part 231 for use in its production cycle. The per unit costs of part 231 are as follows: $ 5 12 Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Total 10 Flintrock, Inc., has offered to sell 9,900 units of part 231 to Bramble for $33 per unit. If Bramble accepts Flintrock's offer, its freed-up facilities could be used to earn $12,100 in contribution margin by manufacturing part 240. In addition, Bramble would eliminate 40% of the fixed overhead applied to part 231. (a) Calculate total relevant cost to make and net cost to buy. Total relevant cost to make Net relevant cost to buy (b) Should Bramble accept Flintrock's offer?

Answer 1

(a) Total relevant costs to make = Direct materials + Direct labor + Variable manufacturing overhead + 40% of fixed manufacturing overhead + Contribution margin lost

= (9,900 * $5) + (9,900 * $12) + (9,900 * $7) + (9,900 * $10 * 40%) + $12,100

= $49,500 + $118,800 + $69,300 + 39,600 + $12,100

= $289,300

Net relevant cost to buy = 9,900 units * $33 per unit

= $326,700

(b)

No (as it would result in loss)