Jax Co. manufactures a product which requires a component that they currently produce themselves. They produce 50,000
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Question:
Direct materials $500,000
Direct labor 200,000
Variable manufacturing overhead 80,000
Fixed manufacturing overhead 90,000
Total manufacturing costs $870,000
Total cost per unit $870,000/50,000 $17.40
Jax Co. could purchase the component from Parts, Inc for $15 per unit. If they purchase the component all variable costs would be eliminated but they would retain $60,000 of the fixed costs.
Should Jax Co purchase the component from Parts, Inc.?
Related Book For
Cost Accounting A Managerial Emphasis
ISBN: 978-0133392883
6th Canadian edition
Authors: Horngren, Srikant Datar, George Foster, Madhav Rajan, Christ
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