Moon Appliance manufactures a variety of appliances which all use Part B89.Currently,Moon Appliance manufactures Part B89 itself.It has been producing 9,000 units of Part B89 annually.The annual costs of producing 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.Assume 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 used to manufacture 7,000 units of another product that would have a $6 per unit contribution margin.If no additional fixed costs would be incurred,what should Moon Appliance do?

Question

Moon Appliance manufactures a variety of appliances which all use Part B89.Currently,Moon Appliance manufactures Part B89 itself.It has been producing 9,000 units of Part B89 annually.The annual costs of producing 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.Assume 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 used to manufacture 7,000 units of another product that would have a $6 per unit contribution margin.If no additional fixed costs would be incurred,what should Moon Appliance do?

Quizplus · Accepted Answer

A)
Direct Materials $3.00
Direct Labor 8.00
Variable MOH 4.00
Total Variable Cost $15.00
Less cost to buy 20.00
Savings (5.00)
Plus CM from new product 6.00
Total add'l contribution to profit $1.00

Moon Appliance Manufactures a Variety of Appliances Which All Use