During 20x6, America, Inc., produced, among other products, 9,400 cameras, incurring the following unit costs: $5...
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During 20x6, America, Inc., produced, among other products, 9,400 cameras, incurring the following unit costs: $5 in direct materials, $3 in direct labor, $2 in variable overhead, $4 in fixed overhead, $0.50 in variable selling and administrative expenses, and $1 in fixed selling and administrative expenses. An outsider had offered to produce the cameras for $12 each. Assuming that the factory space would have been idle otherwise, acceptance of the outside offer would have |
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saved the company $19,100. |
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lost the company $9,400. |
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lost the company $14,100. |
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saved the company $34,100. |
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Homework Answers
Cost of making per unit = Direct material + Direct labor + variable overhead + variable selling and administrative expense
= 5 + 3 + 2 + 0.5
= $10.5
Cost of buying from outside = $12
Net loss per unit if cameras are bought from outside supplier = Cost of buying from outside - Cost of making per unit
= 12 - 10.5
= $1.5
Total loss if cameras are bought from outside = Number of cameras x Net loss per unit
= 9,400 x 1.5
= $14,100
Third option is the correct option.
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