Relevant Cost Exercises Each of the following situations is independent:a. Make or Buy Terry Inc. manufactures machine parts for aircraft engines. CEO Bucky Waltersis considering an offer from a subcontractor to provide 2,000 units of product OP89 for $120,000.If Terry does not purchase these parts from the subcontractor, it must continue to produce themin-house with these costs:[LO 11-1, 11-2, 11-3,11-4, 11-7]Cost per UnitDirect materials $28Direct labor 18Variable overhead 16Allocated fixed overhead 4Required1. What is the relevant cost (per unit, rounded to 2 decimal places) to make the product internally?2. What is the estimated increase or decrease in short-term operating profit of producing the productinternally versus purchasing the product from a supplier? (Round your answer to nearest whole dollar.)3. What strategic considerations likely bear on this make-vs.-buy decision?
Relevant Cost Exercises Each of the following situations is independent:
a. Make or Buy Terry Inc. manufactures machine parts for aircraft engines. CEO Bucky Walters
is considering an offer from a subcontractor to provide 2,000 units of product OP89 for $120,000.
If Terry does not purchase these parts from the subcontractor, it must continue to produce them
in-house with these costs:
[LO 11-1, 11-2, 11-3,
11-4, 11-7]
Cost per Unit
Direct materials $28
Direct labor 18
Variable overhead 16
Allocated fixed overhead 4
Required
1. What is the relevant cost (per unit, rounded to 2 decimal places) to make the product internally?
2. What is the estimated increase or decrease in short-term operating profit of producing the product
internally versus purchasing the product from a supplier? (Round your answer to nearest whole dollar.)
3. What strategic considerations likely bear on this make-vs.-buy decision?
Trending now
This is a popular solution!
Step by step
Solved in 3 steps
