Green Manufacturing makes 30,000 units per year of a part used in the manufacture of its new camcorder. An outside supplier has offered to sell Green all of these parts for $48 a unit. If the parts were purchased from the supplier, all of the direct labor costs would be avoided as well as $5 of manufacturing overhead costs per unit. Product cost information for the part under review is as follows:
$\begin{array}{lr}
\text { Direct Materials}&\$18\
\text { Direct Labor}&\$24\
\text { Manufacturing overhead}&\$16\
\text { Unit product cost}&\$58\
\end{array}$

If Green has no other use for the space vacated by the decision to purchase the part from the outside supplier, what is the net total dollar advantage (disadvantage)of purchasing the part rather than making it?
A)($30,000).
B)$300,000.
C)$30,000.
D)($300,000)

Question

Green Manufacturing makes 30,000 units per year of a part used in the manufacture of its new camcorder. An outside supplier has offered to sell Green all of these parts for $48 a unit. If the parts were purchased from the supplier, all of the direct labor costs would be avoided as well as $5 of manufacturing overhead costs per unit. Product cost information for the part under review is as follows:
$\begin{array}{lr}
\text { Direct Materials}&\$18\
\text { Direct Labor}&\$24\
\text { Manufacturing overhead}&\$16\
\text { Unit product cost}&\$58\
\end{array}$

If Green has no other use for the space vacated by the decision to purchase the part from the outside supplier, what is the net total dollar advantage (disadvantage)of purchasing the part rather than making it?
A)($30,000).
B)$300,000.
C)$30,000.
D)($300,000)

Quizplus · Accepted Answer

If Green purchases the part from the outside supplier, it will save $24 per unit in direct labor costs and $5 per unit in manufacturing overhead costs. However, it will also incur a cost of $48 per unit for the purchased part. Therefore, the net total dollar advantage (disadvantage) of purchasing the part rather than making it is:(30,000 units x $24) + (30,000 units x $5) - (30,000 units x $48) = ($300,000)

Green Manufacturing Makes 30,000 Units Per Year of a Part