Ahrends Corporation Makes 70,000 Units Per Year of a Part

question 184

Multiple Choice

Ahrends Corporation makes 70,000 units per year of a part it uses in the products it manufactures. The unit product cost of this part is computed as follows:
An outside supplier has offered to sell the company all of these parts it needs for $48.50 a unit. If the company accepts this offer, the facilities now being used to make the part could be used to make more units of a product that is in high demand. The additional contribution margin on this other product would be $273,000 per year.
If the part were purchased from the outside supplier, all of the direct labor cost of the part would be avoided. However, $8.20 of the fixed manufacturing overhead cost being applied to the part would continue even if the part were purchased from the outside supplier. This fixed manufacturing overhead cost would be applied to the company's remaining products.
-How much of the unit product cost of $54.90 is relevant in the decision of whether to make or buy the part?

• A) $37.80 per unit
• B) $46.70 per unit
• C) $54.90 per unit
• D) $19.00 per unit

---

Definitions:

Client-Visits

Instances where a service provider meets with clients at their location or the provider's premises for consultation or business purposes.

Planning Budget

A budget developed at the beginning of the budgeting period that is based on projected levels of activity.

Selling

Expenses incurred directly and indirectly in making sales, including advertising, sales commissions, and the cost of sales personnel.

Administrative Expenses

Overhead or indirect costs related to the general operation of a company, such as office supplies, legal fees, and management salaries.