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133.     Jordan Company manufactures a part for its production cycle. The costs per unit for 20,000 units of this part are as follows:

Direct materials

$15

 

 

Direct labor

12

 

 

Variable factory overhead

20

 

 

Unavoidable fixed factory overhead

18

 

 

Total cost

$65

The Jordan Company has been approached by a supplier who claims it can sell Jordan Company 20,000 units of the same part for $940,000.

     Required:

     a.     Assuming there is no alternative use for the facilities, how much money would Jordan Company save by buying the part?

     
b.     Assuming the facilities can be rented out for $10,000 per year, should Jordan Company buy the part, and if so, how much money would be saved?
     
     c.     Are there any other factors Jordan Company should consider?

     
134.      Scrooge Company produces a part that is used in the manufacture of one of its products. The costs associated with the production of 11,000 units of this part are as follows:

 

Direct materials

$25,000

 

 

Direct labor

34,000

 

 

Variable factory overhead

65,000

 

 

Fixed factory overhead

50,000

 

 

 

 

$174,000

Of the fixed factory overhead costs, $9,000 is avoidable.

     Required:

     a.     Assuming there is no alternative use for the facilities, should Scrooge Company take advantage of an offer from a supplier who is willing to sell Scrooge Company 11,000 units of the same part for $12.50 per unit?

     b.     Would your answer to Part A change if the facilities could be rented for $10,000 a year?

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