Question

The Outland Company manufactures 1,000 units of a part that could be purchased from an outside supplier for $12 each. Outland’s cost to manufacture each part are as follows:
Direct materials........... $ 2
Direct labor............ 3
Variable manufacturing overhead..... 4
Fixed manufacturing overhead....... 8
Total............... $17

All fixed overhead is unavoidable and is allocated based on direct labor. The facilities that are used to manufacture the part have no alternative uses.

Required
a. Should Outland continue to manufacture the part? Show your calculations.
b. Would your answer change if Outland could lease the manufacturing facilities to another company for $5,000 per year? Show your calculations.



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  • CreatedFebruary 21, 2014
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