Answer:-1)-The Wehner company should purchase units from outside supplier due to lower of both option. This will produce total cost saving of $22932.($54.64-$54.22)*54600 units. The remainder part of fixed overhead ie will not considered for above decision. The overhead cost is totally unavoidable whether purchase from outside supplier or not, it will continue to occur, hence ignored.
Explanation:-
Wehner company | |||
Statement of Comparative cost | |||
Manufaturing | Amount | Purchase from outside Supplier | Amount |
Alternative 1 | Per unit $ | Alternative 2 | Per unit $ |
Direct Material | 42.10 | Purchase Cost | 54.22 |
Direct Labor | 9.00 | ||
Variable Manufacuring Overhead | 3.30 | ||
Fixed manufacturing overhead ($13049/54600 units) | 0.24 | ||
Total Manufaturing cost | 54.64 | Total Purchase cost | 54.22 |
2)-The maximum amount per unit the Wehner would be willing to pay to an outside supplier:-$54.64 per unit
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