Question

Wehner company is currently manufacturing part abs-43, producing 59,700 units annually. the part is used in the production of several products made by wehner. the cost per unit for abs-43 is as follows: direct materials $47.45 direct labor 8.30 variable overhead 3.25 fixed overhead 4.00 total $63.00 of the total fixed overhead assigned to abs-43, $14,567 is direct fixed overhead (the annual lease cost of machinery used to manufacture part abs-43), and the remainder is common fixed overhead. an outside supplier has offered to sell the part to wehner for $58.82. there is no alternative use for the facilities currently used to produce the part. no significant non-unit-based overhead costs are incurred.

Should Wehner Company make or buy Part ABS-43?
Wehner should buy the part. This will produce total cost savings of

Answer 1

1. Wehner Company should buy the part. This will produce total cost savings of $4.05 per unit. 2. The maximum amount per unit that Wehner would be willing to pay to an outside supplier is $62.05, which is the current cost per unit.

1. Should Wehner Company make or buy Part ABS-43?

Calculate the cost savings per unit:

`\[ Cost\ Savings\ per\ Unit = Current\ Cost\ per\ Unit - Cost\ offered\ by\ the\ outside\ supplier \] \\ Cost\ Savings\ per\ Unit = $62.05 - $58.00 = $4.05 \]`

Therefore, Wehner should buy the part, and this decision will result in total cost savings of $4.05 per unit.

2. What is the maximum amount per unit that Wehner would be willing to pay to an outside supplier?

The maximum amount Wehner would be willing to pay to an outside supplier is the current cost per unit:

`\[ Maximum\ Amount\ per\ Unit = Current\ Cost\ per\ Unit = $62.05 \]`

Therefore, the maximum amount per unit that Wehner would be willing to pay to an outside supplier is $62.05.

The complete question is:
Wehner Company is currently manufacturing Part ABS-43, producing 55,000 units annually. The part is used in the production of several products made by Wehner. The cost per unit for ABS-43 is as follows:

Direct materials $45.60

Direct labor 9.80

variable overhead 2.75

Fixed overhead 3.90

Total : $62.05

Of the total fixed overhead assigned to ABS-43, $15,400 is direct fixed overhead (the annual lease cost of machinery used to manufacture Part ABS-43), and the remainder is common fixed overhead. An outside supplier has offered to sell the part to Wehner for $58. There is no alternative use for the facilities currently used to produce the part. No significant non-unit-based overhead costs are incurred.

1. Should Wehner Company make or buy Part ABS-43? Wehner should ........... the part. This will produce total cost savings of $ .

2. What is the maximum amount per unit that Wehner would be willing to pay to an outside supplier? Round your answer to the nearest cent.