Iwasaki Inc. is considering whether to continue to make acomponent or to buy it from an outside supplier. The company uses13,900 of the components each year. The unit product cost of thecomponent according to the company's cost accounting system isgiven as follows:
Directmaterials $ 9.70 Direct labor 6.70 Variablemanufacturing overhead 2.50 Fixed manufacturingoverhead 4.50
Unit productcost $23.40
Assume that direct labor is a variable cost. Of the fixedmanufacturing overhead, 30% 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, this machine time wouldbe freed up for use on another product that requires 4 minutes onthis machine and that has a contribution margin of $6.10 perunit.
When deciding whether to make or buy the component, what cost ofmaking the component should be compared to the price of buying thecomponent? (Round your intermediate calculations and finalanswer to 2 decimal places.)
A $26.45
B $23.95
C $20.25
D $23.30
Iwasaki Inc. is considering whether to continue to make acomponent or to buy it from an outside supplier. The company uses13,900 of the components each year. The unit product cost of thecomponent according to the company's cost accounting system isgiven as follows: |
| Directmaterials | $ 9.70 |
| Direct labor | 6.70 |
| Variablemanufacturing overhead | 2.50 |
| Fixed manufacturingoverhead | 4.50 |
| Unit productcost | $23.40 |
Assume that direct labor is a variable cost. Of the fixedmanufacturing overhead, 30% 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, this machine time wouldbe freed up for use on another product that requires 4 minutes onthis machine and that has a contribution margin of $6.10 perunit. |
When deciding whether to make or buy the component, what cost ofmaking the component should be compared to the price of buying thecomponent? (Round your intermediate calculations and finalanswer to 2 decimal places.) |
A $26.45
B $23.95
C $20.25
D $23.30
Related questions
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?
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Iwasaki Inc. is considering whether to continue to make acomponent or to buy it from an outside supplier. The company uses14,100 of the components each year. The unit product cost of thecomponent according to the company's absorption cost accountingsystem is given as follows: |
| Directmaterials | $ 9.90 |
| Direct labor | 6.90 |
| Variablemanufacturing overhead | 2.70 |
| Fixed manufacturingoverhead | 4.70 |
| Unit productcost | $24.20 |
Assume that direct labor is a variable cost. Of the fixedmanufacturing overhead, 40% is avoidable if the component werebought from the outside supplier, the remainder is not avoidable.In addition, making the component uses 4 minutes on the machinethat is the company's current constraint. If the component werebought, time would be freed up for use on another product thatrequires 8 minutes on this machine and that has a contributionmargin of $6.30 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? (Round your intermediate calculations and finalanswer to 2 decimal places.) |
$27.35
$26.65
$21.38
$24.53
The Rodgers Company makes 28,600 units of a certain componenteach year for use in one of its products. The cost per unit for thecomponent at this level of activity is as follows:
| Direct materials | $8.20 |
| Direct labor | $13.60 |
| Variable manufacturing overhead | $9.80 |
| Fixed manufacturing overhead | $7.30 |
Rodgers has received an offer from an outside supplier who iswilling to provide 28,600 units of this component each year at aprice of $34.60 per component. Assume that direct labor is avariable cost. None of the fixed manufacturing overhead would beavoidable if this component were purchased from the outsidesupplier.
Assume that if the component is purchased from the outsidesupplier, $35,100 of annual fixed manufacturing overhead would beavoided and the facilities now being used to make the componentwould be rented to another company for $64,800 per year. If Rodgerschooses to buy the component from the outside supplier under thesecircumstances, then the impact on annual net operating income dueto accepting the offer would be:
$14,100 decrease.
$14,100 increase.
$50,700 decrease.
$50,700 increase.
