Pattup Company makes 40,000 units per year of a part that it uses in the products it manufactures. The unit product cost of this

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Pattup Company makes 40,000 units per year of a part that it uses in the products it manufactures. The unit product cost of this

part is computed as follows: Direct materials ………………………… $11.30 Direct labor ………………………… .. 22.70 Variable manufacturing overhead ……… 1.20 Fixed manufacturing overhead ………… 24.70 Unit product cost …………………… $59.90 An outside supplier has offered to sell the company all of these parts it needs for $46.20 a unit. If the company accepts this offer, the facilities now being used to make the part could be rented out to earn $264,000 per year. $21.90 of the fixed manufacturing overhead cost being applied to the part are unavoidable and would remain even if the part was purchased from the outside supplier. What is the net total dollar advantage (disadvantage) of purchasing the part rather than making it? A. $264,000 B. ($328,000) C. $548,000 D. ($64000)

Business

1 answer:

Katen [3.5K] · Answer 1 · 2026-03-18T02:41:08+03:00

-$64000. The calculation of the net total occurs as follows: Direct material = $11.30, Direct labor = $22.70, Variable manufacturing overhead = $1.20, Fixed manufacturing overhead ($24.70 - $21.90) = $2.80. The total relevant cost is derived from the sum of the direct material, direct labor, variable manufacturing overhead, and fixed manufacturing overhead totaling $38.00. The total cost associated with manufacturing is derived from relevant cost per unit multiplied by the number of units plus the opportunity contribution margin lost, calculated to be $1,784,000. The overall cost for purchasing stands at $1,848,000. Thus, the net total equals the total cost of making minus the total cost of buying, amounting to -$64000.