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Home Q & A Board Other Fields Homework Help Business Accounting
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spiderman13 spiderman13
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A month ago
Paris Manufacturing Company Inc. uses 400 units of Part #4317 each year in the manufacture of one of its products. The company currently produces the part internally, but an outside supplier has offered to provide the part at a price of $20 per part. If Paris chooses to purchase the part from the outside supplier, one third of it's the fixed manufacturing overhead will be eliminated. The company's standard unit cost of producing the part is listed below.

Direct material$  8
Direct labor6
Variable manufacturing overhead5
Fixed manufacturing overhead    9
Total unit cost$28

Required:

Ignoring qualitative factors, should Paris continue to make the parts internally or purchase them from the outside supplier? Why?
Textbook 
Managerial Accounting

Managerial Accounting


Edition: 4th
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sportzchik15sportzchik15
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A month ago
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More solutions for this book are available here
​​MakeBuy
Purchase price of part​$     20
Direct material$        8 ​
Direct labor6 ​
Variable overhead5 ​
Direct fixed overhead      3*_____
Relevant costs per unit$      22 $      20
Number of units    400    400
Total cost$8,800 $8,000
*$9 × 1/3

Paris should not continue to make the part because outsourcing it will save the company $8,000 each year. The relevant cost of purchasing the part is less than the cost of making it.
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spiderman13 Author
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A month ago
Thanks for your help!!
Fleury
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Yesterday
I appreciate what you did here, answered it right Smiling Face with Open Mouth
einstein
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2 hours ago
Correct Slight Smile TY
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