For many years, Carthage Inc. has manufactured a small electrical part that is used in the...
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For many years, Carthage Inc. has manufactured a small electrical part that is used in the manufacture of its standard diesel tractor model. At a business volume of 60,000 units per year, the unit cost and total cost of production for this part is calculated as follows: Item Raw materials Direct labor X Variable manufacturing overhead Fixed manufacturing overhead Common fixed manufacturing cost Total Costs Per Unit $4.00 2.75 0.50 3.00 2.25 12.50 Total Cost $240,000 165,000 30,000 180,000 135,000 750,000 Units 60,000 18,000 60000 60000 68000 60,000 An outside supplier offered to provide Carthage Inc. with this electrical component at a cost of only $10 per unit, One-third of the fixed manufacturing overhead costs consist of the supervisor's salary and other costs that can be eliminated in the event of purchase of the part. The remaining two-thirds of the fixed manufacturing overhead costs are amortization of the equipment used, which has no resale value. The decision to purchase the part from an outside supplier would have no effect on the company's common fixed overhead costs and the space currently used for this production could be leased at $ 80,000 per year. Required: Should Carthage Inc. purchase the part from an outside supplier. Show calculations For many years, Carthage Inc. has manufactured a small electrical part that is used in the manufacture of its standard diesel tractor model. At a business volume of 60,000 units per year, the unit cost and total cost of production for this part is calculated as follows: Item Raw materials Direct labor X Variable manufacturing overhead Fixed manufacturing overhead Common fixed manufacturing cost Total Costs Per Unit $4.00 2.75 0.50 3.00 2.25 12.50 Total Cost $240,000 165,000 30,000 180,000 135,000 750,000 Units 60,000 18,000 60000 60000 68000 60,000 An outside supplier offered to provide Carthage Inc. with this electrical component at a cost of only $10 per unit, One-third of the fixed manufacturing overhead costs consist of the supervisor's salary and other costs that can be eliminated in the event of purchase of the part. The remaining two-thirds of the fixed manufacturing overhead costs are amortization of the equipment used, which has no resale value. The decision to purchase the part from an outside supplier would have no effect on the company's common fixed overhead costs and the space currently used for this production could be leased at $ 80,000 per year. Required: Should Carthage Inc. purchase the part from an outside supplier. Show calculations
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Current cost of production of part internally Raw materials 4 60000 units 2400... View the full answer
Related Book For
Managerial Accounting
ISBN: 9780073526706
12th Edition
Authors: Ray H. Garrison, Eric W. Noreen, Peter C. Brewer
Posted Date:
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