Asked by
Robert Artis
on Nov 12, 2024
Verified
6 Cost to Cardinal to make the part: Direct materials $4 Direct labour 16 Variable manufacturing overhead 8 Fixed manufacturing overhead 10$38 Cost to buy the part from the Oriole Company $36\begin{array} { | l | r | } \hline \text { Cost to Cardinal to make the part: } & \\\hline \text { Direct materials } & \$ 4 \\\hline \text { Direct labour } & 16 \\\hline \text { Variable manufacturing overhead } & 8 \\\hline \text { Fixed manufacturing overhead } & 10 \\\hline & \$ 38 \\\hline \text { Cost to buy the part from } & \\\hline \text { the Oriole Company } & \$ 36 \\\hline\end{array} Cost to Cardinal to make the part: Direct materials Direct labour Variable manufacturing overhead Fixed manufacturing overhead Cost to buy the part from the Oriole Company $416810$38$36 Oriole Company has offered to sell this part to Cardinal company for $36 each. If Cardinal buys the part from Oriole instead of making it, Cardinal would not have any use for the released capacity. In addition, 60% of the fixed manufacturing overhead costs will continue regardless of what decision is made. Assume that direct labour is an avoidable cost in this decision. In deciding whether to make or buy the part, the total relevant costs to make the part are:
A) $720,000.
B) $640,000.
C) $560,000.
D) $760,000.
Variable Manufacturing Overhead
Costs of manufacturing that vary directly with the level of production, aside from direct labor and materials.
Fixed Manufacturing Overhead
Indirect production costs that remain constant regardless of the volume of production, such as factory rent and salaries of managers.
Direct Labour
The labor costs directly attributable to the production of goods or services, typically wages paid to workers who are directly involved in manufacturing.
- Analyze make-or-buy decisions by identifying and calculating relevant costs.
Verified Answer
SG
Learning Objectives
- Analyze make-or-buy decisions by identifying and calculating relevant costs.