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Waiters, Inc. has been manufacturing 10,000 units of part 2050 per month, which is used in...

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Accounting

Waiters, Inc. has been manufacturing10,000 units of part 2050 per month, which is used in manufacturingone of its products. At this level of production, the cost per unitto manufacture part 2050 follows:

                              Directmaterials          $10.00

                              Directlabor                   25.00

                              Variableoverhead         13.00

                              Fixedoverhead              12.00

                              Total                             $60.00

Westbrook Company has offered the sellWaiters 10,000 units of part 2050 for $55 a unit. Waiters hasdetermined that it could use the facilities presently used tomanufacture part 2050 to manufacture produce RAC, which wouldgenerate an additional contribution margin per month of $50,000.Waiters also has determined that one-third of the fixed overheadwill be incurred even if it purchases part 2050 from Westbrook andmakes product RAC.

Required:

Determine whether ornot Waiters should purchase from Westbrook. Assume that Waiterswould take the opportunity to make product RAC.

Answer & Explanation Solved by verified expert
4.5 Ratings (837 Votes)
Direct materials 1000 Direct labor 2500 Variable overhead 1300 Variable cost per unit of part 2050 48 Fixed overhead per unit of part 2050 12 Monthly production of part 2050 10000 units Hence monthly total fixed overheads 10000 x 12 120000    See Answer
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