Moon Appliance manufactures a variety of appliances which all use Part B89.Currently,Moon Appliance manufactures Part B89 in its internal processing division.Moon Appliance produces 9,000 units of Part B89 annually.The annual costs to produce Part B89 at the level of 9,000 units include:

All of the fixed manufacturing overhead costs would continue whether Part B89 is made internally or purchased from an outside supplier.Assuming Moon Appliance can purchase 9,000 units of the part from the Nadal Parts Company for $20.00 each,and the facilities currently used to make the part could be rented out to another manufacturer for $18,000 a year,what should Moon Appliance do?

Question

Moon Appliance manufactures a variety of appliances which all use Part B89.Currently,Moon Appliance manufactures Part B89 in its internal processing division.Moon Appliance produces 9,000 units of Part B89 annually.The annual costs to produce Part B89 at the level of 9,000 units include:

All of the fixed manufacturing overhead costs would continue whether Part B89 is made internally or purchased from an outside supplier.Assuming Moon Appliance can purchase 9,000 units of the part from the Nadal Parts Company for $20.00 each,and the facilities currently used to make the part could be rented out to another manufacturer for $18,000 a year,what should Moon Appliance do?

Quizplus · Accepted Answer

B)
Direct Materials 3.00
Direct Labor 8.00
Variable Expenses 4.00
Cost to Produce 15.00
Potential income $18,000 / 9,000 units = $2.00 additional revenue per unit
Price to buy from Supplier 20.00
Less Rental Revenue (2.00)
Net Cost to Buy 18.00
Cost to Produce 15.00
Less Cost to Buy (18.00)
Savings if Buy (3.00)

Moon Appliance Manufactures a Variety of Appliances Which All Use