Question

Kingston Company, which needs 10,000 units of a certain part to be used in its production cycle, can make or buy the part. If Kingston buys the part from Utica Company, Kingston could not use the released facilities in another manufacturing activity within the coming year. 60% of the fixed overhead applied will continue regardless of which decision option is chosen. The following per-unit cost information to make the part by Kingston is available: Direct materials $ 37 Direct labor 148 Variable overhead 74 Fixed overhead applied 93 $ 352 Cost to buy the part from Utica Company $ 85 In deciding whether to make or buy the part, Kingston's total relevant cost to make the part would be:

Answer 1

Answer: $‭2,962,000‬

Step-by-step explanation:

60% of the fixed overhead cannot be avoided which means that only 40% can be avoided. This is the amount to include in the analysis.

To make 10,000 units, the cost would be:

= Direct materials + Direct labor + Variable Overhead + Fixed overhead applied

= (10,000 * 37) + ( 10,000 * 148) + (10,000 * 74) + (10,000 * 93 * 40%)

= 370,000 + 1,480,000 + 740,000 + 372,000

= $‭2,962,000‬