Bulan IncMakes a Range of Products

question 45

Essay

Bulan Inc.makes a range of products.The company's predetermined overhead rate is $20 per direct labor-hour,which was calculated using the following budgeted data:

Component T6 is used in one of the company's products.The unit product cost of the component according to the company's cost accounting system is determined as follows:
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An outside supplier has offered to supply component T6 for $101 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.Bulan chronically has idle capacity.
Required:
Is the offer from the outside supplier financially attractive? Why?

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Definitions:

Evaluating Facts

The process of assessing the accuracy and relevance of information to determine truth.

Objective

Based on facts rather than feelings or opinions; not influenced by personal feelings or interpretations.

Syllogistic Steps

Logical sequences involved in the process of syllogism, a form of reasoning where a conclusion is drawn from two given or presumed propositions (premises) that share a common term.

Implicit Propositions

Assumptions within an argument that are not explicitly voiced but underlie the reasoning.