Question

The folowing information applies to the questions displayed below] Hoboken Industries currently manufactures 48,000 units of part MR24 each month for use in production of several of its products. The facilities now used to produce part MR24 have a fixed monthly cost of $240,000 and a capacity to produce 3.000 units per month. If the company were to buy part JR63 from an outside supplier, the facilities would be idle, but its xed costs would continue at 40 percent of their present amount. The variable production costs of part MR24 are $16 per unit 2. If Hoboken Industries is able to obtain part MR24 from an outside supplier at a unit purchase price of $18, what is the monthly usage at which it will be indifferent between purchasing and making part MR24? units usage Required information The following information applies to the questions displayed below.] Hoboken Industries currently manufactures 48,000 units of part MR24 each month for use in production of several of its products. The facilities now used to produce part MR24 have a fixed monthly cost of $240,000 and a capacity to produce 93,000 units per month. If the company were to buy part JR63 from an outside supplier, the facilities would be idle, but its fixed costs would continue at 40 percent of their present amount. The variable production costs of part MR24 are $16 per nit. Required 1. If Hoboken Industries continues to use 48,000 units of part MR24 MR24 from an outside supplier only if the supplier's unit price is less than what amount? each month, it would realze a net benefit by purchasing part Amount

Answer 1

Answer:

1. 72000 units.

2. $19.

Explanation:

Solution:

Part 1:

Let's Sort out the data given:

Monthly Cost Fixed = $240,000

Fixed Cost unavoidable = 40% x 240,000

Fixed Cost unavoidable = $96,000

Now,

Avoidable Fixed Cost will be = $240,000 - $96,000

Avoidable Fixed Cost will be = $144,000

It means that, if the industries obtain products from the outside supplier, it will save or avoid fixed cost of $144,000 per month.

Now, we also given that,

Variable Production Cost = $16 per unit

Purchase Price per unit (Outsider) = $18 per unit

Increment in Price per unit = $18 - $16 = $2

Hence,

It will cost the industry an extra of $2 per unit.

Now, we can calculate the required monthly usage at which it will be indifferent between purchasing and making part MR24.

Break Even Monthly Usage  = Avoidable Fixed Cost/ Incremental Price per unit.

Break Even Monthly Usage = $144,000/$2

Break Even Monthly Usage = 72000 units.

Hence, Monthly usage at which it will be indifferent between purchasing and making part MR24 = 72000 units.

Part 2:

Monthly usage as given = 48000 units on which it can avoid the fixed cost of $144,000

Avoidable Monthly fixed cost = $144,000

So, now, we can calculate the avoidable fixed cost per unit as well.

Avoidable Fixed Cost Per unit = $144,000/48000

Avoidable Fixed Cost Per unit = $3

We also know,

Variable Production cost per unit = $16

Avoidable Fixed cost per unit = $3

So, we can see the maximum purchase price in order to avoid monthly fixed cost.

Maximum Purchase price per unit = $16 + $3 =$19

It means, $19 is the maximum purchase price, if the industry is approaching the outsider for the monthly usage of 48000 units. It will benefit if the price is less than $19.