Sample Problems Exercises 32.7 and 32.8

The following information is for exercises 32.7 and 32.8 Aggie Corporation is manufacturing a part that is used in its finished product. The costs for each unit of the part follow. Direct materials$19 Direct labor 18 Manufacturing overhead variable costs$5 fixed costs 3 8 Total cost$45 The fixed overhead is based on $300,000 of fixed costs to manufacture 100,000 parts per year. If the part is not manufactured, fixed costs will be reduced by approximately $100,000 per year.

Instead of making the part, Aggie has an opportunity to purchase the part from an outside company for $45 per unit. Should the company accept the offer, or should it continue to manufacture the part? Cost to purchase the part: purchase price45.00 reduction in fixed costs Cost to manufacture the part direct material19.00 direct labor18.00 manufacturing overhead Differential cost savings if manufactured 2.00 The company should make the part

Assume that an outside vendor has offered to sell Aggie the part for $42 per unit. Should the company continue to manufacture the part, or should it purchase the part? Cost to purchase the part purchase price42.00 reduction in fixed costs Cost to manufacture the part direct materials19.00 direct labor18.00 manufacturing overhead Differential cost savings if purchased 1.00 The company should purchase the part