Review Question 2 ABC Co. wants to know if they should change their equipment or buy the product from an outside company. The cost to buy it from an outside supplier is $18.50. Using the old equipment, the costs are the following: Direct Material Direct Labour Manufacturing Overhead Supervision General Company Overhead Amortization-existing equipment Total Per unit $6.00 $8.40 $1.80 $1.60 $4.00 $1.90 $23.70 Should the company make or buy? Total $ 64,000 $160,000 $224,000 New equipment will be better and much more efficient. It will reduce direct labour by 30%. The new machine will cost $3.50 per unit. Old machine has no salvage value. Variable manufacturing overhead is 40 % of total manufacturing overhead. The General Company Overhead is not affected by the decision to buy the product.
Review Question 2 ABC Co. wants to know if they should change their equipment or buy the product from an outside company. The cost to buy it from an outside supplier is $18.50. Using the old equipment, the costs are the following: Direct Material Direct Labour Manufacturing Overhead Supervision General Company Overhead Amortization-existing equipment Total Per unit $6.00 $8.40 $1.80 $1.60 $4.00 $1.90 $23.70 Should the company make or buy? Total $ 64,000 $160,000 $224,000 New equipment will be better and much more efficient. It will reduce direct labour by 30%. The new machine will cost $3.50 per unit. Old machine has no salvage value. Variable manufacturing overhead is 40 % of total manufacturing overhead. The General Company Overhead is not affected by the decision to buy the product.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Transcribed Image Text:Review Question 2
ABC Co. wants to know if they should change their equipment or buy the product from an outside company. The cost to buy it from an outside
supplier is $18.50. Using the old equipment, the costs are the following:
Direct Material
Direct Labour
Manufacturing Overhead
Supervision
General Company Overhead
Amortization-existing
equipment
Total
Per unit
$6.00
$8.40
$1.80.
$1.60
$4.00
$1.90
$23.70
Should the company make or buy?
Total
$ 64,000
$160,000
$224,000
New equipment will be better and much more efficient. It will reduce direct labour by 30%.
The new machine will cost $3.50 per unit. Old machine has no salvage value.
Variable manufacturing overhead is 40% of total manufacturing overhead.
The General Company Overhead is not affected by the decision to buy the product.
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