Sardi Inc. is considering whether to continue to make acomponent or to buy it from an outside supplier. The company uses17,000 of the components each year. The unit product cost of thecomponent according to the company's cost accounting system isgiven as follows:
Directmaterials $ 8.20 Directlabor 8.30 Variable manufacturing overhead 1.20 Fixedmanufacturing overhead 4.30 Unitproduct cost $ 22.00
Assume that direct labor is a variable cost. Of the fixedmanufacturing overhead, 70% is avoidable if the component werebought from the outside supplier. In addition, making the componentuses 2 minutes on the machine that is the company's currentconstraint. If the component were bought, time would be freed upfor use on another product that requires 4 minutes on this machineand that has a contribution margin of $7.00 per unit.
When deciding whether to make or buy the component, what cost ofmaking the component should be compared to the price of buying thecomponent?
Question 32 options:
A)
$20.71 per unit
B)
$22.00 per unit
C)
$25.50 per unit
D)
$24.21 per unit
Sardi Inc. is considering whether to continue to make acomponent or to buy it from an outside supplier. The company uses17,000 of the components each year. The unit product cost of thecomponent according to the company's cost accounting system isgiven as follows:
Directmaterials | $ | 8.20 | |
Directlabor | 8.30 | ||
Variable manufacturing overhead | 1.20 | ||
Fixedmanufacturing overhead | 4.30 | ||
Unitproduct cost | $ | 22.00 |
Assume that direct labor is a variable cost. Of the fixedmanufacturing overhead, 70% is avoidable if the component werebought from the outside supplier. In addition, making the componentuses 2 minutes on the machine that is the company's currentconstraint. If the component were bought, time would be freed upfor use on another product that requires 4 minutes on this machineand that has a contribution margin of $7.00 per unit.
When deciding whether to make or buy the component, what cost ofmaking the component should be compared to the price of buying thecomponent?
Question 32 options:
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