Jordan Company manufactures a part for its production cycle. The costs per unit for 20,000 units of this part are as follows: $$\begin{array} { l l }
\text { Direct materials } & \$ 15 \
\text { Direct labor } & 12 \
\text { Variable factory overhead } & 20 \
\text { Unavoidable fixed factory overhead } & \underline { 18 } \
\text { Total cost } & \underline { \$ 65 }
\end{array}$$ The Jordan Company has been approached by a supplier who claims it can sell Jordan Company 20,000 units of the same part for $940,000.
Required:
a. Assuming there is no alternative use for the facilities, how much money would Jordan Company save by buying the part?
b. Assuming the facilities can be rented out for $10,000 per year, should Jordan Company buy the part, and if so, how much money would be saved?
c. Are there any other factors Jordan Company should consider?

Question

Jordan Company manufactures a part for its production cycle. The costs per unit for 20,000 units of this part are as follows: $$\begin{array} { l l } 
\text { Direct materials } & \$ 15 \
\text { Direct labor } & 12 \
\text { Variable factory overhead } & 20 \
\text { Unavoidable fixed factory overhead } & \underline { 18 } \
\text { Total cost } & \underline { \$ 65 }
\end{array}$$ The Jordan Company has been approached by a supplier who claims it can sell Jordan Company 20,000 units of the same part for $940,000.
Required:
a. Assuming there is no alternative use for the facilities, how much money would Jordan Company save by buying the part?
b. Assuming the facilities can be rented out for $10,000 per year, should Jordan Company buy the part, and if so, how much money would be saved?
c. Are there any other factors Jordan Company should consider?

Quizplus · Accepted Answer

The Answer of Jordan Company manufactures a part for its production cycle. The costs per unit for 20,000 units of this part are as follows: $$\begin{array} { l l } 
\text { Direct materials } & \$ 15 \
\text { Direct labor } & 12 \
\text { Variable factory overhead } & 20 \
\text { Unavoidable fixed factory overhead } & \underline { 18 } \
\text { Total cost } & \underline { \$ 65 }
\end{array}$$ The Jordan Company has been approached by a supplier who claims it can sell Jordan Company 20,000 units of the same part for $940,000.
Required:
a. Assuming there is no alternative use for the facilities, how much money would Jordan Company save by buying the part?
b. Assuming the facilities can be rented out for $10,000 per year, should Jordan Company buy the part, and if so, how much money would be saved?
c. Are there any other factors Jordan Company should consider?

Jordan Company Manufactures a Part for Its Production Cycle The Jordan Company Has Been Approached by a Supplier Who