Question

TB Problem Qu. 12-182 Part 467 is used in one of Broce Corporation's ... Part 467 is used in one of Broce Corporation's products. The company's Accounting Department reports the following costs of producing the 14,900 units of the part that are needed every year. Per Direct materials Direct labor Variable overhead Supervisor's salary Depreciation of special equipment Allocated general overhead Unit $ 1.80 $ 2.80 $ 5.60 $ 6.10 $ 7.20 $ 4.30 An outside supplier has offered to make the part and sell it to the company for $22.00 each. If this offer is accepted, the supervisor's salary and all of the variable costs, including direct labor, can be avoided. The special equipment used to make the part was purchased many years ago and has no salvage value or other use. The allocated general overhead represents fixed costs of the entire company. If the outside supplier's offer were accepted, only $20,900 of these allocated general overhead costs would be avoided. Required: a. Prepare a report that shows the financial impact of buying part 167 from the supplier rather than continuing to make it inside the company. b. Which alternative should the company choose? Complete this question by entering your answers in the tabs below. Required A Required B

Answer 1

A.

	Make	Buy
Direct materials	14,900 x 1.80 = 26,820	0
Direct labor	14,900 x 2.80 = 41,720	0
Variable overhead	14,900 x 5.60 = 83,440	0
Supervisor's salary	14,900 x 6.10 = 90,890	0
Depreciation of special equipment	14,900 x 7.20 = 107,280	14,900 x 7.20 = 107,280
Allocated general overhead	14,900 x 4.30 = 64,070	43,170
Outside purchase price	0	14,900 x 22 = 327,800
Total cost	$414,220	$478,250

B.

Total cost of making = $414,220

Total cost of buying = $478,250

Difference in total cost = Total cost of buying - Total cost of making

= 478,250-414,220

= $64,030

The total cost of the make alternative is

Lower

by

$64,030

therefor, the company should

make

the part.

Kindly comment if you need further assistance. Thanks‼!