The Norran Company Needs 15,000 Units of a Certain Part

question 46

Multiple Choice

The Norran Company needs 15,000 units of a certain part to use in its production cycle. If Norran buys the part from Waterloo Company instead of making it, Norran could not use the released facilities in another activity; thus, all of the fixed overhead applied will continue regardless of what decision is made. Accounting records provide the following data: Cost to Norran to make the part:
Direct materials, $3
Direct labor, $12
Variable overhead, $13
Fixed overhead applied, $8
Cost to buy the part from the Waterloo Company, $27
In deciding whether to make or buy the part, Norran's total relevant costs to make the part are

• A) $360,000.
• B) $240,000.
• C) $420,000.
• D) $405,000.

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Definitions:

General Ledger

The comprehensive set of accounts that records all financial transactions of a business, serving as the central repository of accounting data.

Subsidiary Ledger

A detailed ledger that provides a breakdown of information summarized in a controlling account in the general ledger.

Control Account

An account used in the general ledger to summarize the details of transactions recorded in subsidiary ledgers.

Subsidiary Ledger

A detailed ledger containing all the individual accounts related to a particular area, such as accounts receivable or accounts payable, which supports the totals recorded in the general ledger.