Gottshall Inc. makes a range of products. The company's predetermined overhead rate is $19 per direct labor-hour, which was calculated using the following budgeted data: Variable manufacturing overhead $ 225,000 Fixed manufacturing overhead $ 630,000 Direct labor-hours 45,000. Component P0 is used in one of the company's products. The unit cost of the component according to the company's cost accounting system is determined as follows: Direct materials $ 21.00 Direct labor 40.80 Manufacturing overhead applied 32.30 Unit product cost $ 94.10 An outside supplier has offered to supply component P0 for $78 each. The outside supplier is known for quality and reliability. Assume that direct labor is a variable cost, variable manufacturing overhead is really driven by direct labor-hours, and total fixed manufacturing overhead would not be affected by this decision. Gottshall chronically has idle capacity. Required: Is the offer from the outside supplier financially attractive? Explain why?
Gottshall Inc. makes a range of products. The company's predetermined overhead rate is $19 per direct labor-hour, which was calculated using the following budgeted data: Variable manufacturing overhead $ 225,000 Fixed manufacturing overhead $ 630,000 Direct labor-hours 45,000. Component P0 is used in one of the company's products. The unit cost of the component according to the company's cost accounting system is determined as follows: Direct materials $ 21.00 Direct labor 40.80 Manufacturing overhead applied 32.30 Unit product cost $ 94.10 An outside supplier has offered to supply component P0 for $78 each. The outside supplier is known for quality and reliability. Assume that direct labor is a variable cost, variable manufacturing overhead is really driven by direct labor-hours, and total fixed manufacturing overhead would not be affected by this decision. Gottshall chronically has idle capacity. Required: Is the offer from the outside supplier financially attractive? Explain why?
Financial And Managerial Accounting
15th Edition
ISBN:9781337902663
Author:WARREN, Carl S.
Publisher:WARREN, Carl S.
Chapter23: Evaluating Variances From Standard Costs
Section: Chapter Questions
Problem 4CMA: JoyT Company manufactures Maxi Dolls for sale in toy stores. In planning for this year, JoyT...
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Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
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Gottshall Inc. makes a range of products. The company's predetermined overhead rate is $19 per
direct labor-hour, which was calculated using the following budgeted data:
Variable manufacturing overhead $ 225,000
Fixed manufacturing overhead $ 630,000
Direct labor-hours 45,000. Component P0 is used in one of the company's products. The unit cost of the component according to
the company's cost accounting system is determined as follows:
Direct materials $ 21.00
Direct labor 40.80
Manufacturing overhead applied 32.30
Unit product cost $ 94.10
An outside supplier has offered to supply component P0 for $78 each. The outside supplier is known
for quality and reliability. Assume that direct labor is a variable cost, variable manufacturing overhead
is really driven by direct labor-hours, and total fixed manufacturing overhead would not be affected
by this decision. Gottshall chronically has idle capacity.
Required:
Is the offer from the outside supplier financially attractive? Explain why?
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