Scenario 12.1 You Currently Make a Part on Old Equipment at a at a Cost

question 38

Multiple Choice

Scenario 12.1
You currently make a part on old equipment at a cost of $50,000 per year and a variable cost of $20 / unit. You have found an outside supplier who will make the part for $15 / unit if you will pay their annual fixed costs of $200,000 / year. The following table summarizes the details of this make versus buy decision.

-Use Scenario 12.1 to answer the question. For what range of output would you prefer to buy?

• A) 0 - 10,000 units per year
• B) 30,001 or more units per year
• C) 10,001 - 20,000 units per year
• D) 20,001 - 30,000 units per year

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Definitions:

Standard Labor Rate

A predetermined rate used to allocate labor costs to products or services, based on the expected or average wage rate for labor.

Employment Taxes

Taxes that employers are required to pay on behalf of their employees, such as social security and Medicare taxes.

Variable Overhead Efficiency Variance

A measure of the efficiency with which variable overhead resources are utilized, calculated by comparing the actual usage against the budgeted or standard usage.

Standard Price

A predetermined cost assigned to materials, labor, and overhead used in budgeting and variance analysis.