Cardinal Company Needs 20,000 Units of a Certain Part to Use

question 72

Multiple Choice

Cardinal Company needs 20,000 units of a certain part to use in one of its products.The following information is available: Cost to Cardinal to make the part: $\begin{array}{l}\begin{array}{lll}\text { Direct Materials}\\\text { Direct Labour}\\\text { Variable Manufacturing Overhead}\\\text { Fixed Manufacturing Overhead}\\\\\text { Cost to buy the part from the Oriole Company: }\\\end{array}\begin{array}{lll}\$ 4 \\\$ 16 \\\$ 8 \\\$ 10 \\\$ 38 \\\$ 36\end{array}\end{array}$


Oriole Company has offered to sell this part to Cardinal Company for $36 each.If Cardinal were to buy the part from Oriole instead of making it,Cardinal would not have any use for the released capacity.In addition,60% of the fixed manufacturing overhead costs would continue regardless of what decision is made.Assume that direct labour is an avoidable cost in this decision.In deciding whether to make or buy the part,what would be the total relevant costs to make the part?

• A) $560,000.
• B) $640,000.
• C) $720,000.
• D) $760,000.

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Definitions:

Direct Labor-Hours

The cumulative hours that employees engaged in the creation of products or services dedicate to their work.

Job-Order Costing

An accounting method used to track the costs associated with each unique job or order, suitable for customized or non-repetitive products.

Direct Labor Cost

The wages and other costs for labor that is directly involved in the production of goods.

Manufacturing Overhead

All manufacturing costs except direct labor and direct materials, including maintenance and utilities.