Growe Company manufactures sewing machines and requires 30,000 units of a component that is used in the manufacturing process. If Growe buys the part from Zigler Brothers the plant will be idle. Of the fixed, 55% overhead will continue regardless of the decision. The cost to buy the part from Zigler is $46. The unit cost to make the part is: $$\begin{array} { l r }
\text { Direct materials } & \$ 12 \
\text { Direct labour } & 20 \
\text { Variable overhead } & 12 \
\text { Average fixed overhead } & 10 \
\quad \text { Total } & \$ 54
\end{array}$$ Which alternative is more profitable and by what amount?

Question

Growe Company manufactures sewing machines and requires 30,000 units of a component that is used in the manufacturing process. If Growe buys the part from Zigler Brothers the plant will be idle. Of the fixed, 55% overhead will continue regardless of the decision. The cost to buy the part from Zigler is $46. The unit cost to make the part is: $$\begin{array} { l r } 
\text { Direct materials } & \$ 12 \
\text { Direct labour } & 20 \
\text { Variable overhead } & 12 \
\text { Average fixed overhead } & 10 \
\quad \text { Total } & \$ 54
\end{array}$$ Which alternative is more profitable and by what amount?

Quizplus · Accepted Answer

The Answer of Growe Company manufactures sewing machines and requires 30,000 units of a component that is used in the manufacturing process. If Growe buys the part from Zigler Brothers the plant will be idle. Of the fixed, 55% overhead will continue regardless of the decision. The cost to buy the part from Zigler is $46. The unit cost to make the part is: $$\begin{array} { l r } 
\text { Direct materials } & \$ 12 \
\text { Direct labour } & 20 \
\text { Variable overhead } & 12 \
\text { Average fixed overhead } & 10 \
\quad \text { Total } & \$ 54
\end{array}$$ Which alternative is more profitable and by what amount?

Growe Company Manufactures Sewing Machines and Requires 30,000 Units of a Component