Question

Bouchard MFG. had always made its parts in-house. However, Lemelin Metal Stamping had recently offered to supply one part, Q378, at a price of $57.00 each. Bouchard uses 31,000 units of part Q378 each year. The cost per unit of this part is as follows:

Direct materials	$ 37.00
Direct labour	$ 12.30
Variable overhead	$   4.50
Fixed overhead	$   3.00
Total	$ 56.80

The fixed overhead is an allocated expense; none of it would be eliminated if production of part Q378 is stopped.

Question 32 (

What is the total relevant cost per unit to make the component?

What is the total relevant cost per unit to buy the component?

Question 33

If Bouchard decides to purchase the component from Lemelin, will operating income increase, decrease, or stay the same?

Question 33 options:

	decrease
	increase
	stay the same

Question 34 options:

If Bouchard decides to purchase the component from Lemelin, operating income will change by $?

. If there is no change to the operating income enter ZERO.

Question 35 (1 point)

Bouchard should make the component.

Question 35 options:

	True
	False

Question 36

Assume that 75 percent of Bouchard MFG's fixed overhead for component Q378 would be eliminated if that component were no longer produced. If the company decides to purchase the component from their supplier, will operating income increase, decrease, or stay the same assuming these conditions?

Question 36 options:

	decrease
	increase
	stay the same

Question 37 options:

Assume that 75 percent of Bouchard MFG's fixed overhead for component Q378 would be eliminated if that component were no longer produced. If Bouchard decides to purchase the component from Lemelin, operating income will change by $?

. If there is no change to the operating income enter ZERO.

Answer 1

32]	Total relevant cost per unit to make the component = Variable cost per unit = 37+12.30+4.50 =	$              53.80
	Total relevant cost per unit to buy the component = Purchase price per unit =	$              57.00
33]	f Bouchard decides to purchase the component from Lemelin, operating income will:
	Decrease
34]	If Bouchard decides to purchase the component from Lemelin, operating income will change [decrease] by:
	`=-31000*(57-53.80) =	$          (99,200)
35]	Bouchard should make the component.
	TRUE
36]	Savings in fixed overhead = 31000*3*75% =	$            69,750
	If the company decides to purchase the component from their supplier, operating income will	Decrease
37]	If Bouchard decides to purchase the component from Lemelin, operating income will change [decrease] by:
	=-31000*(57-53.8)+69750 =	$    (29,450.00)