Question

Diesel: At an activity volume of 60,000 units per year, the unit cost of production of this part is calculated as follows:

	By Unit	Total
Raw Materials	$4
Direct Labor	$2.75
Variable indirect manufacturing costs	$0.50
Specific manufacturing indirect costs	$3	$180000
Common fixed manufacturing indirect costs	$2.25	$135000
Unit cost for product	$12.50

An outside supplier offered to sell Carthage Inc. this electrical component at only $ 10 per unit. One-third of the specific fixed manufacturing overhead is made up of foremen's wages and other costs that can be eliminated if the part is purchased. The other two thirds of the specific fixed indirect manufacturing costs consist of the depreciation of the equipment used, which has no resale value. The decision to purchase the part in question from an outside supplier would have no effect on the company's common overhead, and the space currently used for this production could be rented at $ 80,000 per year.

1.a In addition to the quantitative analysis ($), the company must take into account what qualitative consideration.

a. The quality of the component in the event of purchase

b. the reliability of the supplier in terms of compliance with the specifics of the product and delivery.

c. the change in supplier prices during the next periods

d. All the foregoing

1.b Should Carthage Inc. Purchase the Part from the External Supplier? Yes or No.

1.c How much would increase or decrease the company's profits if it decided to buy the component rather than make it itself.
a. profits will decrease by $ 80,000.           b. profits will increase by $ 80,000.            c. profits will increase by $ 25,000. d. profits will decrease by $ 25,000.

1.d The relevant unit cost of production is :

a. 6,75 $            b. 10,25 $         c. 8,25 $            d. 7,25 $

Answer 1