Question

QestioI O JLM Company makes 12,000 units per year of a part it uses in the products it manufactures. The per unit product cost of this part is shown below: direct materials $15.00 direct labor 16.00 variable overhead 11.00 fixed overhead 22222 total An outside supplier has offered to sell JLM Company 12,00 units of this part a year for $55.e8 per unit. If JLM Company accepts this offer, the facilities now being used to make this part could be used to make more units of a product that is in high demand. The additional contribution margin that could be earned on this other product would be $34,800 per year. 60% of the fixed overhead would be eliminated if JLM purchases the part from the outside supplier. The otherr 40 % of the fixed overhead is allocated and would be still be incurred even if the part is purchased from the outside supplier. It has been determined that if JLM Company purchases the part from the outside supglier their net income would increase by $30, 000. Calculate the fixed overhead cost per unit related to this part.

Answer 1

As the question is not clear about whether the net income is as per accounting records or cost decision making. i assumed that the net income word is derived as per cost decision making (based on the data provided in the question). and Hence, the Opportunity cost has been considered relevant. and also the fixed cost portion which is relevant for that part only has been taken into the calculation.

let us assume the tixed lost Per Unit So, Relevant to the Pa9t 60% 0 X - 0.6X Calculation ob Relevont Casts of Paryl Pasticulars Direct Materals 2000 x 15 180000 [12000 x 16 Variable overhed [i2000x ixad overhead 2000 x 0.6x Direct lalor 192000 1,32000 7200 X 34,800 oppurtunity lost Eotrition lost Jo tal Relevant Cast Ci Manuyactred) 538800 + 7200 lost o acquiring to outside supplien 660000 12000 xS5 The net in tome would in crease bey 30 000 it aaired fromm outside supplier. Therebore 660000 (Acguiring lost 30000 Manyactunng cos+ S38800+ F200 x- 30 e00 15 1200 7200x 21 . Fixxed nst Per Unit 21