Bady Inc Makes a Range of Products

question 68

Essay

Bady Inc. makes a range of products. The company's predetermined overhead rate is $14 per direct labor-hour, which was calculated using the following budgeted data: Component M3 is used in one of the company's products. The unit cost of the component according to the company's cost accounting system is determined as follows: An outside supplier has offered to supply component M3 for $108 each. The outside supplier is known for quality and reliability. Assume that direct labor is a variable cost, variable manufacturing overhead is really driven by direct labor-hours, and total fixed manufacturing overhead would not be affected by this decision. Bady chronically has idle capacity.
Required:
Is the offer from the outside supplier financially attractive? Why?

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Definitions:

Organization Development

A planned, systematic approach to improving an organization's effectiveness through changes in processes, behaviors, and culture.

Employee Attitudes

The feelings and sentiments employees hold about their work, workplace, and organizational practices.

Survey Feedback

A process used in organizational development where data is collected through surveys and then fed back to the participants with the aim of facilitating change or improvement.

Effective Guidelines

Are clear, actionable, and well-communicated principles or rules designed to achieve desired outcomes efficiently.