Great Company manufactures 60,000 units of part XL-40 each year for use on its production line. The following are the costs of making part XL-40: Direct material Total Costs 60,000 unit Cost per unit Br. 480, 000 Br.8 Direct labor 360, 000 6 Variable factory overhead (FOH) 180, 000 3 Fixed FOH 360, 000 6 Total manufacturing costs Br. 1, 380, 000 Br.23 Another manufacturer has offered to sell the same part to Great for Br.21 each. The fixed overhead consists of depreciation, property taxes, insurance, and supervisory salaries. The entire fixed overhead would continue if the Great Company bought the component except that the cost of Br.120, 000 pertaining to some supervisory and custodial personnel could be avoided. Instructions: a) Should the parts be made or bought? Assume that the capacity now used to make parts internally will become idle if the pats are purchased? b) Assume that the capacity now used to make parts will be either (i) be rented to nearby manufacturer for Br. 60, 000 for the year or (ii) be used to make another product that will yield a profit contribution of Br. 250,000 per Should the company purchase them from the outside supplier?

Great Company manufactures 60,000 units of part XL-40 each year for use on its production line. The following are the costs of making part XL-40: Direct material Total Costs 60,000 unit Cost per unit Br. 480, 000 Br.8 Direct labor 360, 000 6 Variable factory overhead (FOH) 180, 000 3 Fixed FOH 360, 000 6 Total manufacturing costs Br. 1, 380, 000 Br.23 Another manufacturer has offered to sell the same part to Great for Br.21 each. The fixed overhead consists of depreciation, property taxes, insurance, and supervisory salaries. The entire fixed overhead would continue if the Great Company bought the component except that the cost of Br.120, 000 pertaining to some supervisory and custodial personnel could be avoided. Instructions: a) Should the parts be made or bought? Assume that the capacity now used to make parts internally will become idle if the pats are purchased? b) Assume that the capacity now used to make parts will be either (i) be rented to nearby manufacturer for Br. 60, 000 for the year or (ii) be used to make another product that will yield a profit contribution of Br. 250,000 per Should the company purchase them from the outside supplier?

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter6: Activity-based, Variable, And Absorption Costing

Section: Chapter Questions

Problem 14EA: Cool Pool has these costs associated with production of 20,000 units of accessory products: direct...

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Question

Great Company manufactures 60,000 units of part XL-40 each year for use on its production line. The following are the costs of making part XL-40:

Direct material Total Costs 60,000 unit Cost per unit

Br. 480, 000 Br.8

Direct labor 360, 000 6

Variable factory overhead (FOH) 180, 000 3

Fixed FOH 360, 000 6

Total manufacturing costs Br. 1, 380, 000 Br.23

Another manufacturer has offered to sell the same part to Great for Br.21 each. The fixed overhead consists of depreciation, property taxes, insurance, and supervisory salaries. The entire fixed overhead would continue if the Great Company bought the component except that the cost of Br.120, 000 pertaining to some supervisory and custodial personnel could be avoided.

Instructions:

a) Should the parts be made or bought? Assume that the capacity now used to make parts internally will become idle if the pats are purchased?
b) Assume that the capacity now used to make parts will be either (i) be rented to nearby manufacturer for Br. 60, 000 for the year or (ii) be used to make another product that will yield a profit contribution of Br. 250,000 per Should the company purchase them from the outside supplier?

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