Question

Mcfarlain Corporation is presently making part U98 that is used in one of its products. A total of 23,000 units of this part
Ο Ο O ($73,800) Ο ($2,500) Ο ($195,300) Ο $96,400
0 0
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Answer #1

Correct Option is

($73800)

There will be a financial disadvantage of $73,800.

Working:

Incremental Analysis Make Buy Increase in cost
Purchase Price $               23.40 $                 23.40
Direct Material $                 4.70 $                  (4.70)
Direct labor $                 4.30 $                  (4.30)
Variable overhead $                 1.80 $                  (1.80)
Supervisor salary $                 5.20 $                  (5.20)
Total Cost per unit $               16.00 $               23.40 $                    7.40
Total Units            23,000.00            23,000.00 $                        -  
Total Cost $     368,000.00 $     538,200.00 $       170,200.00
Less: Opportunity Cost 96400 $          96,400.00
Total Cost $     368,000.00 $     441,800.00 $         73,800.00
There will be increase in cost by $73800 (441800 - 368,000)
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