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EIric Corporation currently manufactures a part in-house that is a main component of its most important product. The company currently manufactures 10,000 units of the part annually. The cost to manufacture one unit of the part is as follows: Direct Materials Direct Labour 40 32 Variable Overhead 15 Fixed Overhead Total 12 99 An external supplier has made an offer to provide the part at a cost of $100 and Elric is considering the offer. I the part is purchased externally, Elric has assessed the impact to be as follows: "he supervisor overseeing the manufacturing of this part would be laid off. The supervisor's salary is 64,000 per year and is included in fixed overhead. "he area used to make the part could be used to expand production to of the main component. "his would increase the annual production and sales of another product produced by Elric y 300 units per year. Each sale of this product generates a contribution margin of $275 per unit,

EIric Corporation currently manufactures a part in-house that is a main component of its most important product. The company currently manufactures 10,000 units of the part annually. The cost to manufacture one unit of the part is as follows: Direct Materials Direct Labour 40 32 Variable Overhead 15 Fixed Overhead Total 12 99 An external supplier has made an offer to provide the part at a cost of $100 and Elric is considering the offer. I the part is purchased externally, Elric has assessed the impact to be as follows: "he supervisor overseeing the manufacturing of this part would be laid off. The supervisor's salary is 64,000 per year and is included in fixed overhead. "he area used to make the part could be used to expand production to of the main component. "his would increase the annual production and sales of another product produced by Elric y 300 units per year. Each sale of this product generates a contribution margin of $275 per unit,

Principles of Accounting Volume 2
Principles of Accounting Volume 2
19th Edition
ISBN:9781947172609
Author:OpenStax
Publisher:OpenStax
Chapter6: Activity-based, Variable, And Absorption Costing
Section: Chapter Questions
Problem 2PB: Five Card Draw manufactures and sells 10,000 units of Aces, which retails for $200, and 8,000 units...
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a) Calculate net advantage of buying the part from the external supplier. 

b) Should the offer be accepted or should Elric continue to produce the product in house?

Elric Corporation currently manufactures a part in-house that is a main component of its most important product. The company currently manufactures 10,000 units of the part annually. The cost to manufacture one unit of the part is as follows: Direct Materials 40 Direct Labour 32 Variable Overhead 15 Fixed Overhead 12 Total 99 An external supplier has made an offer to provide the part at a cost of $100 and Elric is considering the offer. If the part is purchased externally, Elric has assessed the impact to be as follows: The supervisor overseeing the manufacturing of this part would be laid off. The supervisor's salary is $64,000 per year and is included in fixed overhead. The area used to make the part could be used to expand production to of the main component. This would increase the annual production and sales of another product produced by Elric by 300 units per year. Each sale of this product generates a contribution margin of $275 per unit.
Transcribed Image Text:Elric Corporation currently manufactures a part in-house that is a main component of its most important product. The company currently manufactures 10,000 units of the part annually. The cost to manufacture one unit of the part is as follows: Direct Materials 40 Direct Labour 32 Variable Overhead 15 Fixed Overhead 12 Total 99 An external supplier has made an offer to provide the part at a cost of $100 and Elric is considering the offer. If the part is purchased externally, Elric has assessed the impact to be as follows: The supervisor overseeing the manufacturing of this part would be laid off. The supervisor's salary is $64,000 per year and is included in fixed overhead. The area used to make the part could be used to expand production to of the main component. This would increase the annual production and sales of another product produced by Elric by 300 units per year. Each sale of this product generates a contribution margin of $275 per unit.
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