Question

Concord Corporation can produce 100 units of a component part with the following costs: Direct Materials $21000 Direct Labor 5500 Variable Overhead 19000 Fixed Overhead 11000 If Concord Corporation can purchase the units externally for $50000, by what amount will its total costs change?

Answer 1

Answer:

If Concord Corporation purchase from outside it total cost will increase by $4500.

Explanation:

Cost of producing the units using current production:

Direct Material Cost                  $21000

Direct Labour Cost                     $5500

Variable Overhead Cost            $19000

Total Cost of Production           $45500

So, Purchase cost minus production cost

Gives $50000 - $45500 increase in cost purchase over production by $4500

Note:

Fixed cost is irrelevant for Concord Corporation either purchase or produce it will remain same.