Question

TB Problem Qu. 12-182 Part U67 is used in one of Broce Corporation's ... Part U67 is used in one of Broce Corporation's products. The company's Accounting Department reports the following costs of producing the 15,900 units of the part that are needed every year. Direct materials Direct labor Variable overhead Supervisor's salary Depreciation of special equipment Allocated general overhead Per Unit $ 2.80 $ 3.80 $ 6.60 $ 7.10 $ 8.20 $ 5.30 An outside supplier has offered to make the part and sell it to the company for $30.00 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 $21,900 of these allocated general overhead costs would be avoided. Required: a. Prepare a report that shows the financial impact of buying part U67 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 Prepare a report that shows the financial impact of buying part U67 from the supplier rather than continuing to make it inside the company. Make Buy Direct materials Direct labor Variable overhead Supervisor's salary Depreciation of special equipment Allocated general overhead Outside purchase price Total cost < Required A Required B

Answer 1

1)

	Make	Buy
Direct materials (15900*$2.80)	$44520
Direct labor (15900*$3.80)	60420
Variable overhead (15900*$6.60)	104940
Supervisor's salary (15900*$7.10)	112890
Depreciation of special equipment	-
Allocated general overhead	21900
Outside purchase price (15900*$30)	-	$477000
Total cost	$344670	$477000

Depreciation of special equipment is not relevant in the decision making as the equipment used to make the product and has no salvage value or other use.

If the company accepted the special offer, the allocated general overhead of $21900 would be avoided, that means only $21900 of the allocated general overhead cost will be relevant for the decision making.

2) The company should make the product as the total cost of making the product is less than buying the product.