Eastern Company currently produces a component that it uses in making some of its products. The company has calculated the following costs for making the component:
$\begin{array}{lr}
\text { Unst-level costs }\\
\text { Materials } & \$ 20 \
\text { Labor } & 28 \
\text { Overhead } & 2 \
\text { Allocated facility-level costs } & 10 \
\text { Total cost } & \$ 60
\end{array}$ Eastern is considering outsourcing the component. A supplier has offered to sell the component to Eastern for $55 each. Eastern needs 10,000 units each year. If Eastern does outsource the component, it can use the facilities to make another product that would yield a contribution margin of $60,000 per year.Required:Should Eastern outsource the component? Support your answer with appropriate computations.What qualitative factors should be considered in this decision?

Question

Eastern Company currently produces a component that it uses in making some of its products. The company has calculated the following costs for making the component:
 $\begin{array}{lr}
\text { Unst-level costs }\\
\text { Materials } & \$ 20 \
\text { Labor } & 28 \
\text { Overhead } & 2 \
\text { Allocated facility-level costs } & 10 \
\text { Total cost } & \$ 60
\end{array}$ Eastern is considering outsourcing the component. A supplier has offered to sell the component to Eastern for $55 each. Eastern needs 10,000 units each year. If Eastern does outsource the component, it can use the facilities to make another product that would yield a contribution margin of $60,000 per year.Required:Should Eastern outsource the component? Support your answer with appropriate computations.What qualitative factors should be considered in this decision?

Quizplus · Accepted Answer

The Answer of Eastern Company currently produces a component that it uses in making some of its products. The company has calculated the following costs for making the component:
 $\begin{array}{lr}
\text { Unst-level costs }\\
\text { Materials } & \$ 20 \
\text { Labor } & 28 \
\text { Overhead } & 2 \
\text { Allocated facility-level costs } & 10 \
\text { Total cost } & \$ 60
\end{array}$ Eastern is considering outsourcing the component. A supplier has offered to sell the component to Eastern for $55 each. Eastern needs 10,000 units each year. If Eastern does outsource the component, it can use the facilities to make another product that would yield a contribution margin of $60,000 per year.Required:Should Eastern outsource the component? Support your answer with appropriate computations.What qualitative factors should be considered in this decision?

Eastern Company Currently Produces a Component That It Uses in Making