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 is currently producing at full capacity, and they would need to invest in new manufacturing equipment that could be used to manufacture the poles. The manufacturing equipment would cost $25,000, and it is estimated that it would last long enough to produce 20,000 sets of poles.
What would be the total cost difference if the company 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 is currently producing at full capacity, and they would need to invest in new manufacturing equipment that could be used to manufacture the poles. The manufacturing equipment would cost $25,000, and it is estimated that it would last long enough to produce 20,000 sets of poles.
What would be the total cost difference if the company 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 is currently producing at full capacity, and they would need to invest in new manufacturing equipment that could be used to manufacture the poles. The manufacturing equipment would cost $25,000, and it is estimated that it would last long enough to produce 20,000 sets of poles.
What would be the total cost difference if the company produced the poles rather than purchasing them?

Outdoor Products (OP) Manufactures Outdoors Accessories