4. A company wants to decide whether to make its materials in-house or to sub-contract production to an external supplier. In the past it has made four materials in-house, but demand in the next year will exceed in-house production capacity of 8,000 units. All four materials are made on the same machines and require the same machine time per unit: machine time is the limiting production factor. The following information is available. Material Units required Variable cost of in-house manufacture Directly attributable fixed cost expenditure Cost of external purchase W 4,000 $8 per unit $5,000 $9 per unit X 2,000 $12 per unit Y 3,000 $9 per unit Z 4,000 $10 per unit $8,000 $6,000 $7,000 $18 per unit $12 per unit $12 per unit Directly attributable fixed costs are fixed cash expenditures that would be saved if production of the material in-house is stopped entirely. If a decision is made solely on the basis of short-term cost considerations, what materials should the company purchase externally?

4. A company wants to decide whether to make its materials in-house or to sub-contract production to an external supplier. In the past it has made four materials in-house, but demand in the next year will exceed in-house production capacity of 8,000 units. All four materials are made on the same machines and require the same machine time per unit: machine time is the limiting production factor. The following information is available. Material Units required Variable cost of in-house manufacture Directly attributable fixed cost expenditure Cost of external purchase W 4,000 $8 per unit $5,000 $9 per unit X 2,000 $12 per unit Y 3,000 $9 per unit Z 4,000 $10 per unit $8,000 $6,000 $7,000 $18 per unit $12 per unit $12 per unit Directly attributable fixed costs are fixed cash expenditures that would be saved if production of the material in-house is stopped entirely. If a decision is made solely on the basis of short-term cost considerations, what materials should the company purchase externally?

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter17: Activity Resource Usage Model And Tactical Decision Making

Section: Chapter Questions

Problem 18E: A company is considering a special order for 1,000 units to be priced at 8.90 (the normal price...

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