Sled Manufacturing budgeted 10,000 widgets for production during 2012. Sled has capacity to
produce 12,000 units. Fixed factory overhead is allocated to production. The following estimated
costs were provided: Direct material ($14/unit)$ 140,000 Direct labor ($30/hr.
Solution
Hi, Part 1 Sales Value (1000*86) = 86000 Variable Cost Direct Material
(1000*14) = 14000 Direct Labor (1000*2*30) = 60000 Variable Manu. Overhead (1000*6) =
6000 Contribution = 86000 - 14000 - 60000 - 6000 = 6000 (Order should be accepted as it
generates an additional margin of $ 6000. Part 2 If produced self = total variable cost = 14 +
60 +6 = 80 If obtained from outside = 78 Fixed cost will have to be incurred in both the cases.
Since the cost of procurement from outside is lesser than in-house variable cost, sled should give
the order to outside supplier. Thanks, Aman
produce 12,000 units. Fixed factory overhead is allocated to production. The following estimated
costs were provided: Direct material ($14/unit)$ 140,000 Direct labor ($30/hr.
Solution
Hi, Part 1 Sales Value (1000*86) = 86000 Variable Cost Direct Material
(1000*14) = 14000 Direct Labor (1000*2*30) = 60000 Variable Manu. Overhead (1000*6) =
6000 Contribution = 86000 - 14000 - 60000 - 6000 = 6000 (Order should be accepted as it
generates an additional margin of $ 6000. Part 2 If produced self = total variable cost = 14 +
60 +6 = 80 If obtained from outside = 78 Fixed cost will have to be incurred in both the cases.
Since the cost of procurement from outside is lesser than in-house variable cost, sled should give
the order to outside supplier. Thanks, Aman
