Barry Inc Makes a Range of Products Component ZZ9 Is Used in One of the Company's Products

question 53

Essay

Barry Inc. makes a range of products. The company's predetermined overhead rate is $14 per direct labor-hour, which was calculated using the following budgeted data:
$\begin{array}{llr} \text { Variable manufacturing overhead } &\$100,000\\ \text { Fixed manufacturing overhead } &\$250,000\\ \text { Direct labor-hour's } &25,000\end{array}$

Component ZZ9 is used in one of the company's products. The unit cost of the component according to the company's cost accounting system is determined as follows:
$$\begin{array} { l r } \text { Direct materials } & \$ 28.00 \\\text { Direct labor } & 56.00 \\\text { Manufacturing overhead applied } & 39.20 \\\text { Unit product cost } & \$ 123.20\end{array}$$
An outside supplier has offered to supply component ZZ9 for $108 each. The outside supplier is known for quality and reliability. Assume that direct labor is a variable cost, variable manufacturing overhead is really driven by direct labor-hours, and total fixed manufacturing overhead would not be affected by this decision. Barry chronically has idle capacity. (CIMA adapted)
Required:
Is the offer from the outside supplier financially attractive? Why?

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Definitions:

Collectivism

A cultural value that emphasizes the importance of groups and collective action over individual interests or identities.

Big Five Personality Dimensions

Five broad domains that define human personality and account for individual differences: Openness, Conscientiousness, Extraversion, Agreeableness, and Neuroticism.

Agreeableness

A personality trait characterized by warmth, kindness, and a cooperative or sympathetic attitude towards others.

Big Five Personality Dimensions

A model describing human personality through five broad dimensions: openness, conscientiousness, extraversion, agreeableness, and neuroticism.