Question

Marigold Corp. can produce 100 units of a component part with the following costs: $20000 Direct Materials Direct Labor 4500 Variable Overhead 18000 Fixed Overhead 11000 If Marigold Corp. can purchase the units externally for $50000, by what amount will its total costs change? An increase of $15500 Anincrease of $7500 A decrease of $11000 An increase of $50000

Answer 1

Answer: An Increase of $ 7500. Calculating Financial Advantage / Disadvantage ) Particulars Direct material Direct labour Variable Overhead Fixed Overhead Purchase cost Total cost Net income increase / Make Buy (Decrease) $ 20,000 $ 20,000 $ 4,500 $ 4,500 $ 18,000 $ 18,000 $ 11,000 $ 11,000 $ $ 50,000 $ (50,000) | $ 53,500 $ 61,000 $ (7,500)

Answer : B = An Increase of $ 7500.

If company buys the units it will incur $ 7,500 more Total cost.