50.1K

Verified Solution

Link Copied!

Chenango Industries uses $12$ units of part JR$63$ each month in the production of radar equipment. The cost of manufacturing one unit of JR$63$ is the following:

Direct material $ $4,500$

Material handling $(20\%$ of direct$-$material cost$)900$

Direct labor $34,000$

Manufacturing overhead $(150\%$ of direct labor$)51,000$

Total manufacturing cost $ $90,400$

Material handling represents the direct variable costs of the Receiving Department that are applied to direct materials and purchased components on the basis of their cost. This is a separate charge in addition to manufacturing overhead. Chenango Industries$$ annual manufacturing overhead budget is one$-$third variable and two$-$thirds fixed. Scott Supply, one of Chenango Industries$$ reliable vendors, has offered to supply part number JR$63$ at a unit price of $$58,000.$

Required:

If Chenango Industries purchases the JR$63$ units from Scott, the capacity Chenango Industries used to manufacture these parts would be idle. Should Chenango Industries decide to purchase the parts from Scott, the unit cost of JR$63$ would increase $($or decrease$)$ by what amount?

Assume Chenango Industries is able to rent out all its idle capacity for $$88,000$ per month. If Chenango Industries decides to purchase the $12$ units from Scott Supply, Chenango$$s monthly cost for JR$63$ would increase $($or decrease$)$ by what amount?

Assume that Chenango Industries does not wish to commit to a rental agreement but could use its idle capacity to manufacture another product that would contribute $$172,000$ per month. If Chenango$$s management elects to manufacture JR$63$ in order to maintain quality control, what is the net amount of Chenango$$s cost from using the space to manufacture part JR$63?$

Answer & Explanation Solved by verified expert

See Answer