FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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Cadence Computer currently manufactures the disk drives that it uses in its computers. The costs to produce 5,000 of these disk drives last year were as follows:
Cost per drive
2$
Direct materials
Direct labor
14
2
Variable manufacturing
overhead
Fixed manufacturing overhead
7
Total
28
Rival Electronics has offered to provide Cadence with all of its disk drive needs for $27 per drive. If Cadence accepts this offer, Cadence will be able to use the freed up space to generate an additional
$20,000 of income each year to produce more of its computer keyboards. Only $3 per drive of the fixed manufacturing overhead cost above could be avoided. Direct labor is an avoidable cost in this
decision. Based on this information, would Cadence be financially better off making the drives or buying the drives and by how much?
O A. $15,000 better to make
O B. $25,000 better to make
OC. $50,000 better to make
O D. $5,000 better to buy
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Transcribed Image Text:Cadence Computer currently manufactures the disk drives that it uses in its computers. The costs to produce 5,000 of these disk drives last year were as follows: Cost per drive 2$ Direct materials Direct labor 14 2 Variable manufacturing overhead Fixed manufacturing overhead 7 Total 28 Rival Electronics has offered to provide Cadence with all of its disk drive needs for $27 per drive. If Cadence accepts this offer, Cadence will be able to use the freed up space to generate an additional $20,000 of income each year to produce more of its computer keyboards. Only $3 per drive of the fixed manufacturing overhead cost above could be avoided. Direct labor is an avoidable cost in this decision. Based on this information, would Cadence be financially better off making the drives or buying the drives and by how much? O A. $15,000 better to make O B. $25,000 better to make OC. $50,000 better to make O D. $5,000 better to buy
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