If the manufacturer makes the blades it costs them 160,000, plus the 30,000 they lose because they can't make the hacksaw blades. It only costs them $170,000 to purchase them from the overseas manufacturer. so the answer is $190,000, $170,000.
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Judi Aldridge
Accountant
Philadelphia PA
United States
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Original Message:
Sent: 02-11-2020 07:12 AM
From: Shilpa Sinha
Subject: PART 2 - Pricing
I am confused with the options in answers
Question: 28 | A manufacturer produces hacksaw blades. Recently, the manufacturer has decided to enhance its product line and offer band blades. Two alternatives are being analyzed: purchase band blades overseas or produce them in-house. If the band blades are made in-house, the manufacturer will not be able to produce hacksaw blades, forgoing a $30,000 profit contribution.Revenue from sale of band blades | $180,000 | Outside purchase | 170,000 | Direct material and labor | 100,000 | Variable manufacturing overhead | 50,000 | Avoidable fixed manufacturing overhead | 10,000 | Calculate the incremental cost of making and purchasing band blades, respectively. |
| | | | | | Answer (B) is correct. The incremental cost of making the band blades is $190,000 ($100,000 direct material and labor + $50,000 variable manufacturing overhead + $10,000 avoidable fixed manufacturing overhead + $30,000 forgone profit contribution). The incremental cost of purchasing the band blades is the $170,000 outside purchase cost. | | | | |
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Shouldn't the option be $190,000 and $140,000? since the cost of purchasing comes down by CM 30,000 earned on another product produced?
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Shilpa Sinha
Analyst
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