Question

question 32
craydye corporation manufactures a part for its production cycle. the costs per unit for 8,000 units of this part are as follows:
direct materials $23
direct labor 43
variable overhead 15
fixed overhead 25
total $106
jekyl company has offered to sell craydye corporation 8,000 units of the part for $120 per unit. if craydye corporation accepts jekyl companys offer, total fixed overhead will be reduced by $40,000. what alternative is more desirable, and by what amount is it more desirable?
(a) buy; $170,000
(b) make; $72,000
(c) make; $220,000
(d) buy; $188,000
last saved 8:18:23 pm
questions filter (50)

Explanation:

Step1: Calculate total make - cost

The variable cost per unit is the sum of direct materials, direct labor and variable overhead. So, variable cost per unit = $23 + 43+15=\$81$.
For 8,000 units, the total variable cost is $81\times8000 = \$648,000$.
The total fixed overhead for 8,000 units is $25\times8000=\$200,000$.
The total make - cost is $648000 + 200000=\$848,000$.

Step2: Calculate total buy - cost

The cost of buying 8,000 units at $120 per unit is $120\times8000=\$960,000$.
The reduction in fixed overhead is $40,000$.
So the net buy - cost is $960000-40000=\$920,000$.

Step3: Find the difference

The difference between the two costs is $920000 - 848000=\$72,000$.
Since the make - cost is lower, making the part is more desirable.

Answer:

B. Make; $72,000