Alibangbang Company produces 100,000 units of Part 34B, used in one of its snowblower engines, each year. An outside supplier has offered to supply the part for $4.75. The unit cost is: Direct material - $0.5; Direct labor - 2.4; Variable overhead (power) - 0.9; Fixed overhead - 1.05; Total unit cost - $4.85. Overhead is applied on the basis of machine hours. Part 34B requires 30,000 machine hours per year. Which alternative is more conservative and by how much? a.Buy, because of the lower purchase price by $.10. Therefore, the company would save $10,000. b.Make, since the company would be able to save by fixed overhead by over $50,000. c.Buy, the company would be able to save $95,000. d.Make, since the company would be able to save variable costs up to $20,000.

Alibangbang Company produces 100,000 units of Part 34B, used in one of its snowblower engines, each year. An outside supplier has offered to supply the part for $4.75. The unit cost is: Direct material - $0.5; Direct labor - 2.4; Variable overhead (power) - 0.9; Fixed overhead - 1.05; Total unit cost - $4.85. Overhead is applied on the basis of machine hours. Part 34B requires 30,000 machine hours per year. Which alternative is more conservative and by how much? a.Buy, because of the lower purchase price by $.10. Therefore, the company would save $10,000. b.Make, since the company would be able to save by fixed overhead by over $50,000. c.Buy, the company would be able to save $95,000. d.Make, since the company would be able to save variable costs up to $20,000.

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Description: Alibangbang Company produces 100,000 units of Part 34B, used in one of its snowblower engines, each year. An outside supplier has offered to supply the part for $4.75. The unit cost is: Direct material - $0.5; Direct labor - 2.4; Variable overhead (p

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter5: Process Costing

Section: Chapter Questions

Problem 1PB: The following product costs are available for Stellis Company on the production of erasers: direct...

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Alibangbang Company produces 100,000 units of Part 34B, used in one of its snowblower engines, each year. An outside supplier has offered to supply the part for $4.75. The unit cost is: Direct material - $0.5; Direct labor - 2.4; Variable overhead (power) - 0.9; Fixed overhead - 1.05; Total unit cost - $4.85. Overhead is applied on the basis of machine hours. Part 34B requires 30,000 machine hours per year. What if $60,000 of fixed overhead is supervision for Part 34B that is avoided if the part is purchased? Which alternative is more cost effective and by how much? a.Buy, because of the company would be able to avoid $60,000 fixed overhead from supervision.b.Make, since the company would be able to save by fixed overhead by over $50,000.c.Buy, the company would be able to save $70,000 of variable costs.d.Make, since the company would still be able to save by as much as $35,000 despite the additional fixed overhead.
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