Pitkin Company Produces a Part Used in the Manufacture of One

question 60

Multiple Choice

Pitkin Company produces a part used in the manufacture of one of its products.The unit product cost of the part is $33,computed as follows:
$\begin{array}{|l|r|}\hline \text { Direct Materials } & \$ 12 \\\hline \text { Direct Labour } & \$ 8 \\\hline \text { Variable Manufacturing Overhead } & \$ 3 \\\hline \text { Fixed Manufacturing Overhead } & \$ 10 \\\hline \text { Unit Product Cost } & \$ 33 \\\hline\end{array}$
An outside supplier has offered to provide the annual requirement of 10,000 of the parts for only $27 each.The company estimates that 30% of the fixed manufacturing overhead costs above will continue if the parts are purchased from the outside supplier.Assume that direct labour is an avoidable cost in this decision.Based on these data,what will be the per-unit dollar advantage or disadvantage of purchasing the parts from the outside supplier?

• A) $1 advantage.
• B) $1 disadvantage.
• C) $3 advantage.
• D) $4 disadvantage.

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Definitions:

Warehouse Shipment

The process of goods being shipped out from a warehouse to the destination specified by the order or client.

Reorders

refers to the process of placing additional orders for goods or services that a customer or business has previously purchased or used.

Supplier-Managed Inventory

A supply chain arrangement where the supplier assumes responsibility for managing inventory levels at the customer's premises, based on agreed parameters.

Inventory-Management System

A tool or software used by businesses to track stock levels, orders, sales, and deliveries to ensure the efficient management of inventory.