Tricia Company has been manufacturing 9,000 units of part Y for its products. The unit cost for
Question:
Tricia Company has been manufacturing 9,000 units of part Y for its products. The unit cost for the part is as follows:
Direct materials. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9
Direct labor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Variable manufacturing overhead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
Fixed manufacturing overhead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $63
A supplier has offered to sell 9,000 units of part Y to Tricia for $54 each. If the part is purchased, Tricia can use its facilities to manufacture another product, which would generate a contribution margin of $12,000. Seventy-five percent of the fixed manufacturing overhead costs are indirect and will still be incurred even if the part is purchased.
Compute the net differential cost in deciding whether to make or buy the part.
Contribution margin is an important element of cost volume profit analysis that managers carry out to assess the maximum number of units that are required to be at the breakeven point. Contribution margin is the profit before fixed cost and taxes...
Step by Step Answer:
Accounting concepts and applications
ISBN: 978-0538745482
11th Edition
Authors: Albrecht Stice, Stice Swain