6.Carter, Inc. can make 100 units of a necessary component part with the following costs:Direct Materials$120,000Direct Labor20,000Variable Overhead60,000Fixed Overhead40,000If Carter purchases the component externally, $30,000 of the fixed costs can be avoided.At what external price for the 100 units is the company indifferent between making orbuying? a.$240,000b.$170,000c.$230,000d.$200,000Ans: C, SO: 4, Bloom: AN, Difficulty: Medium, Min: 5, AACSB: Analytic, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC:Problem Solving, IMA: Decision Analysis 7.Carter, Inc. can make 100 units of a necessary component part with the following costs:Direct Materials$120,000Direct Labor20,000Variable Overhead60,000Fixed Overhead40,000If Carter can purchase the component externally for $220,000 and only $10,000 of thefixed costs can be avoided, what is the correct make-or-buy decision? 8.Ashley Industries can make 1,000 units of a necessary component with the followingcosts:Direct Materials$144,000Direct Labor36,000Variable Overhead18,000Fixed Overhead?The company can purchase the 1,000 units externally for $234,000. The avoidable fixedcosts are $12,000 if the units are purchased externally. An analysis shows that at thisexternal price, the company is indifferent between making or buying the part. What are thefixed overhead costs of making the component? FOR INSTRUCTOR USE ONLY 17 - 28
Activity-Based Costing 9.Mink Manufacturing is unsure of whether to sell its product assembled or unassembled.The unit cost of the unassembled product is $60 and Mink would sell it for $130. The costto assemble the product is estimated at $42 per unit and the company believes the marketwould support a price of $170 on the assembled unit. What decision should Mink make?
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