Part XE3 Is Used in One of Sun Corporation's Products

question 58

Essay

Part XE3 is used in one of Sun Corporation's products.The company's Accounting Department reports the following costs of producing the 12,000 units of the part that are needed every year.An outside supplier has offered to make the part and sell it to the company for $14.70 each.If this offer is accepted,the supervisor's salary and all of the variable costs,including direct labor,can be avoided.The special equipment used to make the part was purchased many years ago and has no salvage value or other use.The allocated general overhead represents fixed costs of the entire company.If the outside supplier's offer were accepted,only $5,000 of these allocated general overhead costs would be avoided.Required:
a.Prepare a report that shows the effect on the company's total net operating income of buying part XE3 from the supplier rather than continuing to make it inside the company.b.Which alternative should the company choose?
$$\begin{array} { | l | r | } \hline & \text { Per Unit } \\\hline \text { Direct materials } & \$ 4.50 \\\hline \text { Direct labor } & \$ 1.20 \\\hline \text { Variable overhead } & \$ 2.70 \\\hline \text { Superisor's salary } & \$ 3.00 \\\hline \text { Depreciation of special equipment } & \$ 2.30 \\\hline \text { Allocated general overhead } & \$ 1.80 \\\hline\end{array}$$

Understand the distinction and application between job order cost and process cost accounting systems.

Comprehend how costs flow through accounts in manufacturing settings, including the movement from Work in Process to Finished Goods.

Recognize the methods for measuring, recording, and reporting product costs.

Identify the documents used in job order costing systems for recording direct labor and material costs.

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Definitions:

Schizophrenia

An illness affecting the mind, leading to altered thinking patterns, sensory perceptions, emotional responses, and behavior in social contexts.

Negative Symptoms

Symptoms of schizophrenia and other psychosis-related disorders that involve the absence or diminution of normal behaviors or emotions, such as social withdrawal or lack of motivation.

Positive Symptoms

In schizophrenia, hallucinations, delusions, and disorganization in thought and behavior.

Neuroleptics

A class of medication primarily used to manage psychosis, particularly in schizophrenia and bipolar disorder.