Teich Inc. is considering whether to continue to make a component or to buy it from an outside supplier. The company uses 12,000 of the components each year. The unit product cost of the component according to the company's absorption cost accounting system is given as follows:

Direct materials$7.80

Direct labor4.80

Variable manufacturing overhead0.60

Fixed manufacturing overhead2.60

Unit product cost$15.80

Assume that direct labor is a variable cost. Of the fixed manufacturing overhead, 35% is avoidable if the component were bought from the outside supplier; the remainder is not avoidable. In addition, making the component uses 3 minutes on the machine that is the company's current constraint. If the component were bought, time would be freed up for use on another product that requires 6 minutes on this machine and that has a contribution margin of $4.20 per unit.

When deciding whether to make or buy the component, what cost of making the component should be compared to the price of buying the component? (Round your intermediate calculations and final answer to 2 decimal places.)

$16.21 per unit

$14.11 per unit

$17.90 per unit

$18.30 per unit

Gary Corporation produces products X, Y, and Z from a single raw material input. Budgeted data for the next month is as follows:

	Product X		Product Y		Product Z
Units produced		1,900		2,400		3,400
Per unit sales value at split-off	$	14	$	18	$	19
Added processing costs per unit	$	4	$	6	$	6
Per unit sales value if processed further	$	23	$	23	$	28

If the cost of raw material input is $82,000, which of the products should be processed beyond the split-off point?

	Product X	Product Y	Product Z
A)	yes	yes	no
B)	yes	no	yes
C)	no	yes	no
D)	no	yes	yes

Option A

Option C

Option D

Option B

The Talbot Corporation makes wheels that it uses in the production of bicycles. Talbot's costs to produce 210,000 wheels annually are:

Direct materials	$42,000
Direct labor	$63,000
Variable manufacturing overhead	$31,500
Fixed manufacturing overhead	$71,000

An outside supplier has offered to sell Talbot similar wheels for $0.80 per wheel. If the wheels are purchased from the outside supplier, $26,000 of annual fixed overhead could be avoided and the facilities now being used could be rented to another company for $60,100 per year. Direct labor is a variable cost.

If Talbot chooses to buy the wheel from the outside supplier, then annual net operating income would:

Noreen 4e Recheck 2017-16-03

increase by $54,600

increase by $42,000

decrease by $5,500

increase by $70,900

Eley Corporation produces a single product. The cost of producing and selling a single unit of this product at the company's normal activity level of 40,000 units per month is as follows:

Direct materials	$55.9
Direct labor	$8.7
Variable manufacturing overhead	$1.2
Fixed manufacturing overhead	$18.2
Variable selling & administrative expense	$1.6
Fixed selling & administrative expense	$8.9

The normal selling price of the product is $100.1 per unit. An order has been received from an overseas customer for 1,300 units to be delivered this month at a special discounted price. This order would not change the total amount of the company's fixed costs. The variable selling and administrative expense would be $1.0 less per unit on this order than on normal sales. Direct labor is a variable cost in this company. Suppose there is ample idle capacity to produce the units required by the overseas customer and the special discounted price on the special order is $92.8 per unit. By how much would this special order increase (decrease) the company's net operating income for the month?

$(30,680)

$19,720

$34,320

$(18,680)