Make-or-Buy Decision, Alternatives, Relevant CostsEach year, Basu Company produces 14,000 units of a component used in microwave ovens. An outside supplier has offered to supply the part for $1.42. The unit cost is:Direct materials$0.87Direct labor0.31Variable overhead0.12Fixed overhead 2.55 Total unit cost$3.85Required:1. What if $19,320 of fixed overhead is rental of equipment used only in production of the component that can be avoided if the component is purchased? Which alternative is more cost effective and by how much?Buying the part from the external supplier by $fill in the blank

Prime cost: The prime cost is the cost incurred on direct material and direct labor in the…

Answered: ach year, Basu Company produces 14,000…

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter13: Lean Manufacturing And Activity Analysis

Section: Chapter Questions

Problem 13E: Lean accounting Modern Lighting Inc. manufactures lighting fixtures, using lean manufacturing...

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Make-or-Buy Decision, Alternatives, Relevant Costs

Each year, Basu Company produces 14,000 units of a component used in microwave ovens. An outside supplier has offered to supply the part for $1.42. The unit cost is:

Direct materials	$0.87
Direct labor	0.31
Variable overhead	0.12
Fixed overhead	2.55
Total unit cost	$3.85

Required:

1. What if $19,320 of fixed overhead is rental of equipment used only in production of the component that can be avoided if the component is purchased? Which alternative is more cost effective and by how much?

Buying the part from the external supplier by $fill in the blank

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