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 $900,000 600,000 300,000 960,000 $2,760,000 Cost per Unit $45 30 15 48 $138 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 could be avoided even if the parts were purchased. Also assume that if Mosality purchases the par it will incur an additional $15,000 annually in receiving and processing costs associated wi its order. What is the net annual advantage or disadvantage of buying?

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 $900,000 600,000 300,000 960,000 $2,760,000 Cost per Unit $45 30 15 48 $138 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 could be avoided even if the parts were purchased. Also assume that if Mosality purchases the par it will incur an additional $15,000 annually in receiving and processing costs associated wi its order. What is the net annual advantage or disadvantage of buying?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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