Question

QUESTION 2

1. Wilson Party Equipment Company manufactures the components needed in the production of its primary product, Computer Controlled Self-Tapping Beer Kegs (widely used at parties sponsored by college students). The per unit cost for the computer component is as follows:
   

   Direct materials	$40
   Direct labor	14
   Variable factory overhead	34
   Allocated facility level fixed overhead (1,000 unit annual volume)	25
   Total cost per unit	$113

   
   Assume that Wilson Party Equipment Company can buy 1,000 of the computer units from another producer for $100 each. The financial aspects of the situation suggest that Wilson Party Equipment Company should consider

   	a.	outsourcing the computer unit production as this would save $13,000 per year.
   	b.	outsourcing the computer unit production as this would save $12,000 per year.
   	c.	continuing to make the computer unit as this would save $13,000 per year.
   	d.	continuing to make the computer unit as this would save $12,000 per year

Answer 1

Here Answer is d. Continuing to make the computer unit as this would save $12000 per year

This is Calculated as following

Total Cost if Computer is produced by Wilson Party Equipment Company = 1000*113 = $113000

Total Cost if Computer is purchased from another producer = Amount to be paid for 1000 computer + Fixed cost assumed to be Unavoidable

= 1000*$100+1000*25 = 100000+25000 = $125000

Extra cost if bought from another supplier = $125000-$113000 = $12000

So it will be resulting in more cost by $12000 if Computer is bought from outside supplier

Decision

so Wilson Party Equipment Company will continuing to make the computer unit as this would save $12000 per year

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