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Oliga
2 months ago
10

Eichholtz Company uses 10,000 units of a part in its production process. The costs to make a part are: direct materials, $12; di

rect labor, $25; variable overhead, $13; and applied fixed overhead, $30. Eichholz has received a quote of $55 from a potential supplier for this part. If Eichholtz buys the part, 70 percent of the applied fixed overhead would continue. Eichholtz Company would be better off by
a) $50,000 to manufacture the part
b) $150,000 to buy the part
c) $40,000 to buy the part or
d) $160,0000 to manufacture the part
Business
1 answer:
Scilla [3.8K]2 months ago
3 0

Answer:

c) $40,000 to purchase the component

Explanation:

To determine the better option, we first need to calculate the per unit cost as follows:

= Direct material cost per unit + Direct labor cost per unit + variable overhead + allocated variable overhead

= $12 + $25 + $13 + $30 × 30%

= $12 + $25 + $13 + $9

= $59

The difference in cost is then calculated as

= $59 - $55

= $4

Consequently, the improved financial situation would be

= Quantity of units × difference in cost

= 10,000 units × $4

= $40,000

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