Johnson and Wales University Make or Buy Decision Accounting Questions
Question Description
I’m working on a accounting practice test / quiz and need an explanation and answer to help me learn.
Question: 1 Junior Company currently buys 30,000 units of a part used to manufacture its product at $40 per unit. Recently the supplier informed Junior Company that a 20% increase will take effect next year. Junior has some additional space and could produce the units for the following per-unit costs (based on 30,000 units):
Direct materials
$16
Direct labor
12
Variable overhead
12
Fixed overhead
10
Total
$50
If the units are purchased from the supplier, $200,000 of fixed costs will continue to be incurred. In addition, the plant can be rented out for $20,000 per year if the parts are purchased externally.
Required: Should Junior Company buy the part externally or make it internally?
Question: 2 Favor Company budgeted the following amounts:
Variable costs of production: Direct materials6 pounds @ $1.25 per pound Direct labor0.75 hours @ $16.00 per hour Variable overhead0.75 hours @ $2.65 per hourFixed overhead: Materials handling
$9,000
Depreciation
$2,300
Required: Prepare a flexible budget for 1,500 units, 1,800 units and 2,100 units.
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