FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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Question
Determine the maximum amount per unit Whalen Industries could pay an outside supplier?
Indicate if the company should make or buy the component and the total dollar difference in favor of that alternative?
Transcribed Image Text:The management of Whalen Industries has been evaluating whether the company should continue
manufacturing a component or buy it from an outside supplier. A $100 cost per component was
determined as follows:
Direct material
Direct labor
| Variable manufacturing overhead
Fixed manufacturing overhead
$ 15
40
10
35
$100
Whalen Industries uses 4,000 components per year. After Wilfert Corporation submitted a bid of $80
per component, some members of management felt they could reduce costs by buying from outside
and discontinuing production of the component. If the component is obtained from Wilfert Corporation,
Whalen Industries' unused production facilities could be leased to another company for $50,000 per
year.
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