Question

PROBLEM ONE Saltek Products manufactures 30,000 000 units of part 1-7 each year for use on its production line. At this level of activity, the cost ivity, the cost per unit of part T-7 is: prie $ 30 poo mits Direct materials Direct Labor Variable Mfg Overhead Fixed Mfg Overhead Total cost per part 3.60 10.00 2.40 9.00 $ 25,00 108 k 300k 72k 270.000 An outside supplier has offered to sell If Soltek Products accepts this offer. rented to another company at an ann ed to sell 30,000 of part 1-7 each year to Soltek Products for $21 per part. shie offer, the facilities now being used to manufacture part T-7 could be at an annual rental of $80,000. However, Soltek Products has determined ufacturing overhead being applied to part T-7 would continue even if ased from the outside supplier. inds of the fixed manufacturing overhead beine part T-7 were purchased from the outside REQUIRED: SHOW ALL WORKI 1. What is the financial advantag 2. What other factors should the scial advantage (disadvantage of accepting the outside supplier's offer? Mors should the top management of Soltek consider before making a decision? & Supplier mits

please soon as soon as possible and show work. pleSe and thank you

Answer 1

Financial Advantage of accepting offer = Avoidable cost of making – Cost of buying

= (Direct material + Direct labor + Variable manufacturing overhead + Avoidable fixed manufacturing overhead ) – (Cost of buying – Additional rent obtained)

= (3.60+10+2.40)*30,000 + 9*30,000*1/3 – (30,000*21-80,000)

= 570,000 – 520,000

= $50,000

Hence, advantage of $50,000 on buying from outside supplier

2. Other factors are:

1.Quality of products supplied by Outside supplier

2. Timely delivery by supplier

3. Threat of competition from outside supplier