Question

Make-or-Buy, Traditional Analysis Wehner Company is currently manufacturing Part ABS-43, producing 54,600 units annually. The part is used in the production of several products made by Wehner. The cost per unit for ABS-43 is as follows Direct materials Direct labor Variable overhead Fixed overhead $42.10 9.00 3.30 3.65 $58.05 Total Of the total fixed overhead assigned to ABS-43, $13,049 is direct fixed overhead (the annual lease cost of machinery used to manufacture Part ABS-43), and the remainder is common fixed overhead. An outside supplier has offered to sell the part to Wehner for $54.22. There is no alternative use for the facilities currently used to produce the part. No significant non-unit-based overhead costs are incurred. Required: 1. Should Wehner Company make or buy Part ABS-43? Wehner should buy the part. This will produce total cost savings of $ 2. What is the maximum amount per unit that Wehner would be willing to pay to an outside supplier? Round your answer to the nearest cent. per unit

Answer 1

Answer:-1)-The Wehner company should purchase units from outside supplier due to lower of both option. This will produce total cost saving of $22932.($54.64-$54.22)*54600 units. The remainder part of fixed overhead ie   will not considered for above decision. The overhead cost is totally unavoidable whether purchase from outside supplier or not, it will continue to occur, hence ignored.

Explanation:-

Wehner company
Statement of Comparative cost
Manufaturing	Amount	Purchase from outside Supplier	Amount
Alternative 1	Per unit $	Alternative 2	Per unit $
Direct Material	42.10	Purchase Cost	54.22
Direct Labor	9.00
Variable Manufacuring Overhead	3.30
Fixed manufacturing overhead ($13049/54600 units)	0.24
Total Manufaturing cost	54.64	Total Purchase cost	54.22

2)-The maximum amount per unit the Wehner would be willing to pay to an outside supplier:-$54.64 per unit