ACC202 Lecture Notes - Nylon, Office Supplies, Fixed Cost
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Question 5: Kane Company is considering outsourcing a keycomponent. A reliable supplier has quoted a price of $64.50 perunit. The following costs of the component when manufacturedin-house are expressed on a per unit basis (assume Direct Labor isa variable cost):
DirectMaterials $23.40
DirectLabor 16.10
Variable Overhead 26.70
Fixed Overhead $ 6.90
Totalcosts $73.10
a) What assumptions need to be made about the behavior ofoverhead costs for Kane in order to analyze the outsourcingdecision?
SAVING ITEMS | RELEVANT |
Direct Materials Cost | =$ |
Direct labor Costs | =$ |
Variable overhead costs | =$ |
Fixed overhead costs | =$ |
ADDITIONAL COSTS | RELEVANT COSTS |
Direct labor Costs | =$ |
Direct materials Costs | =$ |
Fixed Overhead Costs | =$ |
Variable overhead cost | =$ |
b) Should Kane Company outsource the component? ???
c) What other factors are relevant to this decision? ???
COSTCLASSIFICATION | 12 points | |||||||||||||||||
Classify each of the following costs as: direct materials (DM),direct labor (DL), factory overhead (FO), selling expense (S) oradministrative expense (A). Place the code of DM, DL, FO, S, or Aon the line to the left of each cost.
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2. | Salary of the Director ofInternal Auditing. | |||||||||||||||||
3. | Long-distance telephone billfor calls made by salespersons. | |||||||||||||||||
4. | Cotton for a textile manufacturer of bluejeans. | |||||||||||||||||
5. | Steel for a construction contractor. | |||||||||||||||||
6. | Electricity used to operate factory machinery. | |||||||||||||||||
7. | Gloves for factory machine operators. | |||||||||||||||||
8. | Fees paid to lawn service for office grounds. | |||||||||||||||||
9. | Salary of secretary to vice-president ofmarketing. | |||||||||||||||||
10. | Production supervisor's salary. | |||||||||||||||||
11. | Depreciation on factory equipment. | |||||||||||||||||
12. | Cost of a radio commercial. |