FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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A2

The Mosality Corporation incurs the following estimated annual costs in making a part for
one of its products:
Direct Labor
Direct Materials
Factory Overhead:
Variable
Fixed
TOTAL
Total Costs for 20,000 units
$345,000 advantage to buy
$215,000 disadvantage to buy
$330,000 advantage to buy
$900,000
O $200,000 disavantage to buy
600,000
300,000
960,000
$2,760,000
Cost per Unit
$45
Another manufacturer offers to sell Mosality the same parts for $110 per unit for 20,000
units per year. Assume that the plant capacity now used to make the parts would become
idle if they were purchased but that only $200,000 of the fixed factory overhead col
avoided even if the parts were purchased. Also assume that if Mosality purchases the part,
it will incur an additional $15,000 annually in receiving and processing costs associated with
its order. What is the net annual advantage or disadvantage of buying?
30
15
48
$138
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Transcribed Image Text:The Mosality Corporation incurs the following estimated annual costs in making a part for one of its products: Direct Labor Direct Materials Factory Overhead: Variable Fixed TOTAL Total Costs for 20,000 units $345,000 advantage to buy $215,000 disadvantage to buy $330,000 advantage to buy $900,000 O $200,000 disavantage to buy 600,000 300,000 960,000 $2,760,000 Cost per Unit $45 Another manufacturer offers to sell Mosality the same parts for $110 per unit for 20,000 units per year. Assume that the plant capacity now used to make the parts would become idle if they were purchased but that only $200,000 of the fixed factory overhead col avoided even if the parts were purchased. Also assume that if Mosality purchases the part, it will incur an additional $15,000 annually in receiving and processing costs associated with its order. What is the net annual advantage or disadvantage of buying? 30 15 48 $138
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