Question

Johnson Co. is currently operating at 80% of capacity and is currently purchasing a part used...

Johnson Co. is currently operating at 80% of capacity and is currently purchasing a part used in its manufacturing operations for $8.00 a unit. The unit cost for Dan Co. to make the part is $9.00, which includes $.60 of fixed costs. If 4,000 units of the part are normally purchased each year but could be manufactured using unused capacity, what would be the amount of differential cost increase or decrease for making the part rather than purchasing it?

Business   Accounting   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Answer :- Differential cost increase = $1,600

Cost of buying = 4,000*$8 = $32,000

Cost of Manufacturing = 4,000 * ($9 - $0.60) = $33,600

It would be bad decision to produce the parts because they would spend $1,600 ( $33,600 - $32,000) more than if they continue to purchase them from a vendor.

So the difference between making and buying product is $1,600, therefore there would be increase of cost by $1,600.

If you have any query ask in comment section. If you like the answer plz rate. Thanks.

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Sage Company is operating at 90% of capacity and is currently purchasing a part used in...
Sage Company is operating at 90% of capacity and is currently purchasing a part used in its manufacturing operations for $13.00 per unit. The unit cost for the business to make the part is $21.00, including fixed costs, and $9.00, not including fixed costs. If 31,048 units of the part are normally purchased during the year but could be manufactured using unused capacity, the amount of differential cost increase or decrease from making the part rather than purchasing it would...
Sage Company is operating at 90% of capacity and is currently purchasing a part used in...
Sage Company is operating at 90% of capacity and is currently purchasing a part used in its manufacturing operations for $18.00 per unit. The unit cost for the business to make the part is $21.00, including fixed costs, and $10.00, excluding fixed costs. If 37,247 units of the part are normally purchased during the year but could be manufactured using unused capacity, what would be the amount of differential cost increase or decrease from making the part rather than purchasing...
A business is operating at 90% of capacity and is currently purchasing a part used in...
A business is operating at 90% of capacity and is currently purchasing a part used in its manufacturing operations for $15 per unit. The unit cost for the business to make the part is $20 (including fixed costs), and $12 (not including fixed costs) Should this company make the part or buy it?
1. Delaney Company is considering replacing equipment that originally cost $505,000 and that has $353,500 accumulated...
1. Delaney Company is considering replacing equipment that originally cost $505,000 and that has $353,500 accumulated depreciation to date. A new machine will cost $893,000. What is the sunk cost in this situation? a.$151,500 b.$505,000 c.$121,200 d.$741,500 2. Lara Technologies is considering a cash outlay of $227,000 for the purchase of land, which it could lease out for $40,890 per year. If alternative investments that yield a 17% return are available, the opportunity cost of the purchase of the land...
Riggs Company purchases sails and produces sailboats. It currently produces 1,250 sailboats per year, operating at...
Riggs Company purchases sails and produces sailboats. It currently produces 1,250 sailboats per year, operating at normal capacity, which is about 80% of full capacity. Riggs purchases sails at $256 each, but the company is considering using the excess capacity to manufacture the sails instead. The manufacturing cost per sail would be $90.54 for direct materials, $89.54 for direct labor, and $90 for overhead. The $90 overhead includes $78,500 of annual fixed overhead that is allocated using normal capacity. The...
Riggs Company purchases sails and produces sailboats. It currently produces 1,280 sailboats per year, operating at...
Riggs Company purchases sails and produces sailboats. It currently produces 1,280 sailboats per year, operating at normal capacity, which is about 80% of full capacity. Riggs purchases sails at $255 each, but the company is considering using the excess capacity to manufacture the sails instead. The manufacturing cost per sail would be $96.98 for direct materials, $87.16 for direct labor, and $90 for overhead. The $90 overhead includes $78,100 of annual fixed overhead that is allocated using normal capacity. The...
Gwinnett Barbecue Sauce Corporation manufactures a specialty barbecue sauce. Gwinnett has the capacity to manufacture and...
Gwinnett Barbecue Sauce Corporation manufactures a specialty barbecue sauce. Gwinnett has the capacity to manufacture and sell 18,000 cases of sauce each year but is currently only manufacturing and selling 16,600. The following costs relate to annual operations at 16,600 cases: Total Cost   Variable manufacturing cost $365,200   Fixed manufacturing cost $62,000   Variable selling and administrative cost $83,000   Fixed selling and administrative cost $44,000 Gwinnett normally sells its sauce for $50 per case. A local school district is interested in purchasing...
Lily Company purchases sails and produces sailboats. It currently produces 1,300 sailboats per year, operating at...
Lily Company purchases sails and produces sailboats. It currently produces 1,300 sailboats per year, operating at normal capacity, which is about 80% of full capacity. Lily purchases sails at $259 each, but the company is considering using the excess capacity to manufacture the sails instead. The manufacturing cost per sail would be $93 for direct materials, $85 for direct labor, and $90 for overhead. The $90 overhead is based on $78,000 of annual fixed overhead that is allocated using normal...
Turner Company currently produces a part which has the following per unit cost:   Direct materials $...
Turner Company currently produces a part which has the following per unit cost:   Direct materials $ 8   Direct labor $3   Variable overhead $1   Fixed overhead    $5    ______    $17 Turner Company can buy the part from an outside supplier for $19 per unit. 60% of Turner Company’s fixed overhead would continue if the part is purchased. If the part is not manufactured by Turner, then the plant facilities can be rented for $60,000 per year. Turner Company is...
XYZ Co. produces a part used in the manufacture of one of its products. The unit...
XYZ Co. produces a part used in the manufacture of one of its products. The unit product cost is $30, computed as follows: Direct materials, direct labor, and variable overhead $22 Fixed overhead $8 Total $30 An outside supplier has offered to provide the parts for only $25 each. The company estimates that 25% of the fixed manufacturing overhead cost above could be eliminated if the parts are purchased from the outside supplier. Based on these data, the per-unit dollar...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT