Pattup Company makes 40,000 units per year of a part that it uses in the products it manufactures. The unit product cost of this part is computed as follows: Direct materials ………………………… $11.30 Direct labor ………………………… .. 22.70 Variable manufacturing overhead ……… 1.20 Fixed manufacturing overhead ………… 24.70 Unit product cost …………………… $59.90 An outside supplier has offered to sell the company all of these parts it needs for $46.20 a unit. If the company accepts this offer, the facilities now being used to make the part could be rented out to earn $264,000 per year. $21.90 of the fixed manufacturing overhead cost being applied to the part are unavoidable and would remain even if the part was purchased from the outside supplier. What is the net total dollar advantage (disadvantage) of purchasing the part rather than making it? A. $264,000 B. ($328,000) C. $548,000 D. ($64000)

-$64000

Explanation:

The computation of net total is as shown below:-

Direct material = $11.30

Direct labor = $22.70

Variable manufacturing overhead = $1.20

Fixed manufacturing overhead ($24.70 - $21.90) = $2.80

Total Relevant cost = Direct material + Direct labor + Variable manufacturing overhead + Fixed manufacturing overhead

= $11.30  + $22.70  + $1.20  + $2.80

= $38.00

Total Cost of Making = Relevant cost per unit × Number of Unit + Opportunity contribution margin lost

= $38 × 40,000 + $264000

= $1,784,000

Total Cost of Buying = $46.20 × 40,000

= $1,848,000

Net total = Total Cost of Making - Total Cost of Buying

= $1,784,000 - $1,848,000

= -$64000

two years ago, when picking flowers in the mountains back of yosemite valley, i found a book. it was blotted and storm-beaten; all of its outer pages were mealy and crumbly. the paper seemed to dissolve like the snow beneath which it had been buried, however; many of the inner pages were well preserved. and although all were more or less stained and torn, whole chapters were easily readable. this is the condition of the great open book of yosemite glaciers today; its granite pages have been torn and blurred by the same storms that wasted the castaway book.

two years ago, when picking flowers in the mountains back of yosemite valley; i found a book. it was blotted and storm-beaten, all of its outer pages were mealy and crumbly. the paper seemed to dissolve like the snow beneath which it had been buried, however, many of the inner pages were well preserved. and although all were more or less stained and torn; whole chapters were easily readable. this is the condition of the great open book of yosemite glaciers today, its granite pages have been torn and blurred by the same storms that wasted the castaway book.