Question

XYZ Corp. manufactures a variety of appliances which all use Part Generic.​ Currently, XYZ Corp manufactures Part Generic at their production facility. Assume XYZ Corp. can purchase 14,000 units of the part from the ALL Parts Company for $20.50 ​each. It has been producing 14,000 units of Part Generic annually. The per unit costs of producing Part Generic at the level of 14,000 units​ include:

Direct materials	$ 3.20 per unit
Direct labor	$ 8.20 per unit
Variable manufacturing overhead	$ 4.20 per unit
Fixed manufacturing overhead	$ 3.00 per unit
Total cost	$ 18.60 per unit

All of the fixed manufacturing overhead costs would continue whether Part Generic is made internally or purchased from an outside supplier, and the facilities currently used to make the part could be used to manufacture 14,000 units of another product that would have a $10 per unit contribution margin. If no additional fixed costs would be​ incurred, what should XYZ Corp.​ do?

Group of answer choices

Continue to make the part to earn an extra $7.00 per unit contribution to profit.

Make the new product and buy the part to earn an extra $5.10 per unit contribution to profit.

None of these.

Continue to make the part to earn an extra $8.20 per unit contribution to profit.

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Answer 1

Correct answer------------Make the new product and buy the part to earn an extra $5.10 per unit contribution to profit.

Working

Differential Analysis
	Make	Buy
Direct material	$       44,800.00
Direct labor	$     114,800.00
Variable Overheads	$       58,800.00
Avoidable Fixed overhead	$                       -
Purchase price		$       287,000.00
Additional benefit from Buying from outside		$    (140,000.00)
Total relevant Cost	$     218,400.00	$       147,000.00

.

Total Cost of Buying	$           147,000
Total Cost of manufacturing	$           218,400
Financial advantage of buying	$ 71,400
Benefit per unit (71400/14000)	$ 5.10