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Each year, Basu Company produces 14,000 units of a component used in microwave ovens. An outside supplier has offered to supply the part for $1.28. The unit cost is: Direct materials $0.83 Direct labor 0.33 Variable overhead 0.06 Fixed overhead  2.65    Total unit cost $3.87 Required: 1. What are the alternatives for Basu Company?   2. Assume that none of the fixed cost is avoidable. List the relevant cost(s) of internal production.   List the relevant cost(s) of external purchase.   3. Which alternative is more cost effective and by how much?   by $fill in the blank 5 4. What if $21,520 of fixed overhead is rental of equipment used only in production of the component that can be avoided if the component is purchased? Which alternative is more cost effective and by how much?   by $fill in the blank 7

Each year, Basu Company produces 14,000 units of a component used in microwave ovens. An outside supplier has offered to supply the part for $1.28. The unit cost is: Direct materials $0.83 Direct labor 0.33 Variable overhead 0.06 Fixed overhead  2.65    Total unit cost $3.87 Required: 1. What are the alternatives for Basu Company?   2. Assume that none of the fixed cost is avoidable. List the relevant cost(s) of internal production.   List the relevant cost(s) of external purchase.   3. Which alternative is more cost effective and by how much?   by $fill in the blank 5 4. What if $21,520 of fixed overhead is rental of equipment used only in production of the component that can be avoided if the component is purchased? Which alternative is more cost effective and by how much?   by $fill in the blank 7

Managerial Accounting
Managerial Accounting
15th Edition
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:Carl Warren, Ph.d. Cma William B. Tayler
Chapter11: Differential Analysis And Product Pricing
Section: Chapter Questions
Problem 3CMA: Aril Industries is a multiproduct company that currently manufactures 30,000 units of Part 730 each...
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Each year, Basu Company produces 14,000 units of a component used in microwave ovens. An outside supplier has offered to supply the part for $1.28. The unit cost is:

Direct materials $0.83
Direct labor 0.33
Variable overhead 0.06
Fixed overhead  2.65
   Total unit cost $3.87

Required:

1. What are the alternatives for Basu Company?
 

2. Assume that none of the fixed cost is avoidable. List the relevant cost(s) of internal production.
 

List the relevant cost(s) of external purchase.
 

3. Which alternative is more cost effective and by how much?

  by $fill in the blank 5

4. What if $21,520 of fixed overhead is rental of equipment used only in production of the component that can be avoided if the component is purchased? Which alternative is more cost effective and by how much?
  by $fill in the blank 7

 

 

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