Manor,Inc.currently manufactures 1,000 subcomponents per month in one of its factories.The unit costs to produce the subcomponents are: The unit costs to produce are:
Manor is considering purchasing the subcomponents from an outside supplier,who normally charges $300 per unit.The supplier also has an "Exclusive Buyer's Club" which costs $30,000 per month to join,but whose members can purchase the subcomponents for $250 per unit.Fixed overhead is not avoidable.How many units would Manor need to order per month to make it worth it to join the "Exclusive Buyer's Club"?

A)800
B)1,000
C)1,200
D)1,500

Question

Manor,Inc.currently manufactures 1,000 subcomponents per month in one of its factories.The unit costs to produce the subcomponents are: The unit costs to produce are:
Manor is considering purchasing the subcomponents from an outside supplier,who normally charges $300 per unit.The supplier also has an "Exclusive Buyer's Club" which costs $30,000 per month to join,but whose members can purchase the subcomponents for $250 per unit.Fixed overhead is not avoidable.How many units would Manor need to order per month to make it worth it to join the "Exclusive Buyer's Club"?

A)800 
B)1,000 
C)1,200 
D)1,500

Quizplus · Accepted Answer

The cost to produce 1,000 subcomponents in-house is:
Direct materials: $60 per unit
Direct labor: $40 per unit
Variable overhead: $20 per unit
Total variable cost per unit: $120

Total cost per month to produce 1,000 units in-house:
1000 units x $120 per unit = $120,000

If Manor joins the Exclusive Buyer's Club, they would pay a membership fee of $30,000 per month and the cost per unit would be $250. This would result in a total cost of:
1000 units x $300 (without club membership) = $300,000
Membership fee: $30,000
Total cost: $330,000

If Manor purchases 1,200 units per month from the supplier, the total cost would be:
1,200 units x $250 per unit = $300,000
Membership fee: $30,000
Total cost: $330,000

Comparing the two options, it is more cost-effective for Manor to join the Exclusive Buyer's Club and purchase 1,200 units per month from the supplier. Therefore, the best choice is C) 1,200.

Manor,IncCurrently Manufactures 1,000 Subcomponents Per Month in One of Its