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XYZ Corp. currently produces a part but is looking to reduce costs.  Units        20,000     Per Unit Total Cost Direct Materials  $            10  $                               200,000 Direct Labor  $              5  $                               100,000 Mfg. Overhead  $              8  $                               160,000 Total  $            23  $                               460,000 The fixed mfg. overhead includes $75,000 of costs that will continue even if outsourced. If the part is outsourced, the space can be used to make other parts and generate an additional $27,000 of contribution margin.  A. Show calculations to determine how much XYZ would consider paying for the part from an outside source.

XYZ Corp. currently produces a part but is looking to reduce costs.  Units        20,000     Per Unit Total Cost Direct Materials  $            10  $                               200,000 Direct Labor  $              5  $                               100,000 Mfg. Overhead  $              8  $                               160,000 Total  $            23  $                               460,000 The fixed mfg. overhead includes $75,000 of costs that will continue even if outsourced. If the part is outsourced, the space can be used to make other parts and generate an additional $27,000 of contribution margin.  A. Show calculations to determine how much XYZ would consider paying for the part from an outside source.

Managerial Accounting
Managerial Accounting
15th Edition
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:Carl Warren, Ph.d. Cma William B. Tayler
Chapter11: Differential Analysis And Product Pricing
Section: Chapter Questions
Problem 3CMA: Aril Industries is a multiproduct company that currently manufactures 30,000 units of Part 730 each...
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XYZ Corp. currently produces a part but is looking to reduce costs. 

Units        20,000  
  Per Unit Total Cost
Direct Materials  $            10  $                               200,000
Direct Labor  $              5  $                               100,000
Mfg. Overhead  $              8  $                               160,000
Total  $            23  $                               460,000

The fixed mfg. overhead includes $75,000 of costs that will continue even if outsourced.

If the part is outsourced, the space can be used to make other parts and generate an additional $27,000 of contribution margin. 

A. Show calculations to determine how much XYZ would consider paying for the part from an outside source. 

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