Question

Make or BuyBlasingham Company is currently manufacturing Part Q108, producing 35,000 units annually. The part is used in the production of several products made by Blasingham. The cost per unit for Q108 is as follows:Direct materials $ 6.00Direct labor 2.00Variable overhead 1.50Fixed overhead 3.50 Total $13.00All of the fixed overhead is common fixed overhead. An outside supplier has offered to sell the part to Blasingham for $11. There is no alternative use for the facilities currently used to produce the part.2. What is the most Blasingham would be willing to pay an outside supplier? If required, round your answer to the nearest cent.$ per unit3. If Blasingham buys the part, by how much will income increase or decrease?Decrease by $

Answer 1

Explanation:

The computation is shown below:

Particulars                   Cost Per unit in ($)

Direct Materials           $6

Direct Labor                  $2  

Variable Overhead  $1.5

Fixed Cost  ($77000 ÷ 35,000 units) $2.2

Total Cost per unit                                 $11.7

So,

1. He will buy the product as it is a saving of $0.7 ($11.7 - $11)

2) The most price willing to pay is $11.7

3) And, There is increase in income by $24,500 by multiply the 35,000 units with the $0.7 per unit in case of buying the part