Aqaba Company is presently making 20,000 units of Component X per year. Component X is used...

  

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Aqaba Company is presently making 20,000 units of Component X per year. Component X is used in the products the company manufactures. The company's reported the following costs of producing one unit of Component X: Direct Materials Direct Labor Variable Manufacturing Overhead Fixed Manufacturing Overhead Total Cost JOD 24.7 JOD 16.3 JOD 2.3 JOD 13.4 JOD 56.7 An outside supplier has offered to sell Aqaba Company all needs from Component X for JOD 51.8 per unit. If Aqaba Company accepts this offer, the facilities now being used to make Component X could be used to make more units of (Product A) that is in high demand. The additional contribution margin on (Product À) would be JOD 44,000 per year. If Component X were purchased from the outside supplier, all of the direct labor cost of the part would be avoided. However, JOD 5.10 of the fixed manufacturing overhead cost being applied to the component would continue even if the part were purchased from the outside supplier, as this cost would be applied to the company's remaining products. Required: The GM of Aqaba Company is considering his options to make or buy, so he asked you as an expert in the company to advise him on two matters: 1. If management decides to buy Component X from the outside supplier rather than to continue making it, how much of the unit product cost of JOD 56.7 is relevant in the decision of whether to make or buy the component? (4 Marks) 2. What is the JOD net total advantage or (disadvantage) of purchasing the component rather than making it intenally? (4 Marks) 3. What is the maximum purchasing price, the company should be willing to pay to an outside supplier per unit for the component, if the supplier commits to supply all 20,000 units required each year? (4 Marks) Aqaba Company is presently making 20,000 units of Component X per year. Component X is used in the products the company manufactures. The company's reported the following costs of producing one unit of Component X: Direct Materials Direct Labor Variable Manufacturing Overhead Fixed Manufacturing Overhead Total Cost JOD 24.7 JOD 16.3 JOD 2.3 JOD 13.4 JOD 56.7 An outside supplier has offered to sell Aqaba Company all needs from Component X for JOD 51.8 per unit. If Aqaba Company accepts this offer, the facilities now being used to make Component X could be used to make more units of (Product A) that is in high demand. The additional contribution margin on (Product À) would be JOD 44,000 per year. If Component X were purchased from the outside supplier, all of the direct labor cost of the part would be avoided. However, JOD 5.10 of the fixed manufacturing overhead cost being applied to the component would continue even if the part were purchased from the outside supplier, as this cost would be applied to the company's remaining products. Required: The GM of Aqaba Company is considering his options to make or buy, so he asked you as an expert in the company to advise him on two matters: 1. If management decides to buy Component X from the outside supplier rather than to continue making it, how much of the unit product cost of JOD 56.7 is relevant in the decision of whether to make or buy the component? (4 Marks) 2. What is the JOD net total advantage or (disadvantage) of purchasing the component rather than making it intenally? (4 Marks) 3. What is the maximum purchasing price, the company should be willing to pay to an outside supplier per unit for the component, if the supplier commits to supply all 20,000 units required each year? (4 Marks)

Answer rating: 100% (QA)

Solution Ans 1 JOD 5160 is relevant of the unit product cost of JOD 5670 Direct mater... View the full answer