Outdoor Products (OP) manufactures outdoors accessories. Management is considering producing the poles for their tents rather than continuing to purchase from their current supplier. The supplier charges $30 per set of poles.
The cost accounting team has estimated that OP would incur the following costs if they were to produce the poles instead: $20 per set for direct materials, $5 per set for direct labor, $3.50 per set for variable overhead, and $10 per set for fixed overhead application.
OP currently has unused production capacity and manufacturing equipment that could be used to manufacture the poles. OP has planned to sell 5,000 tents this year.
What would the change in overall cost be for the company if OP produced the poles rather than purchasing them?

Question

Outdoor Products (OP) manufactures outdoors accessories. Management is considering producing the poles for their tents rather than continuing to purchase from their current supplier. The supplier charges $30 per set of poles. 
The cost accounting team has estimated that OP would incur the following costs if they were to produce the poles instead: $20 per set for direct materials, $5 per set for direct labor, $3.50 per set for variable overhead, and $10 per set for fixed overhead application.
OP currently has unused production capacity and manufacturing equipment that could be used to manufacture the poles. OP has planned to sell 5,000 tents this year.
What would the change in overall cost be for the company if OP produced the poles rather than purchasing them?

Quizplus · Accepted Answer

The Answer of Outdoor Products (OP) manufactures outdoors accessories. Management is considering producing the poles for their tents rather than continuing to purchase from their current supplier. The supplier charges $30 per set of poles. 
The cost accounting team has estimated that OP would incur the following costs if they were to produce the poles instead: $20 per set for direct materials, $5 per set for direct labor, $3.50 per set for variable overhead, and $10 per set for fixed overhead application.
OP currently has unused production capacity and manufacturing equipment that could be used to manufacture the poles. OP has planned to sell 5,000 tents this year.
What would the change in overall cost be for the company if OP produced the poles rather than purchasing them?

Outdoor Products (OP) Manufactures Outdoors Accessories