Jeff Company Produces a Part That Is Used in the Manufacture

question 1

Essay

Jeff Company produces a part that is used in the manufacture of one of its products.The annual costs associated with the production of 11,000 units of this part are as follows:
$\begin{array} { l } \text {Direct materials }&\$25,000 \\ \text { Direct labor}&34,000 \\ \text {Variable indirect production costs }&65,000\\ \text {Fixed indirect production costs }&40,000 \\ \text {Total cost }&\$164,000 \\\end{array}$

A supplier is willing to sell 11,000 units of the part to Jeff Company for $12.50 per unit.When examining the fixed indirect production costs,Jeff Company determines $10,000 is avoidable.
Required:
A) If there are no alternative uses for the facilities, should Jeff Company take advantage of the supplier's offer?
B) If Jeff Company decides to buy the part from the supplier, Jeff Company can rent out the idle facilities for $50,000 per year. Should Jeff Company take advantage of the supplier's offer?

• A) If there are no alternative uses for the facilities, should Jeff Company take advantage of the supplier's offer?
• B) If Jeff Company decides to buy the part from the supplier, Jeff Company can rent out the idle facilities for $50,000 per year. Should Jeff Company take advantage of the supplier's offer?

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Definitions:

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