Eichholtz Company uses 10,000 units of a part in its production process. The costs to make a part are: direct materials, $12; direct labor, $25; variable overhead, $13; and applied fixed overhead, $30. Eichholz has received a quote of $55 from a potential supplier for this part. If Eichholtz buys the part, 70 percent of the applied fixed overhead would continue. Eichholtz Company would be better off by

a) $50,000 to manufacture the part

b) $150,000 to buy the part

c) $40,000 to buy the part or

d) $160,0000 to manufacture the part

Question

Business

Nona

17 June, 06:14

Eichholtz Company uses 10,000 units of a part in its production process. The costs to make a part are: direct materials, $12; direct labor, $25; variable overhead, $13; and applied fixed overhead, $30. Eichholz has received a quote of $55 from a potential supplier for this part. If Eichholtz buys the part, 70 percent of the applied fixed overhead would continue. Eichholtz Company would be better off by

a) $50,000 to manufacture the part

b) $150,000 to buy the part

c) $40,000 to buy the part or

d) $160,0000 to manufacture the part

+1

Answers (1)

Know the Answer?

Elyse Medina · Answer 1

c) $40,000 to buy the part

Explanation:

For computing the better off first we have to compute the per unit cost which is shown below:

= Direct material per unit + Direct labor per unit + variable overhead + applied variable overhead

= $12 + $25 + $13 + $30 * 30%

= $12 + $25 + $13 + $9

= $59

The difference cost would be

= $59 - $55

= $4

Now the better off would be

= Number of units * difference cost

= 10,000 units * $4

= $40,000