Bulan Inc.makes a range of products.The company's predetermined overhead rate is $20 per direct labor-hour,which was calculated using the following budgeted data:

Component T6 is used in one of the company's products.The unit product cost of the component according to the company's cost accounting system is determined as follows:
C:\Users\user\Dropbox\Quizplus Parsing Documents\To Be Parsed\Done Farah\TB2461,Introduction to Managerial Accounting 6th Edition by Eric Noreen\Brewer_7e_PrintFile_TestBank_File\Brewer_7e_PrintFile_TestBank_File\Images\7e_BGN_CH10_TB_edit 02172015_198.png
An outside supplier has offered to supply component T6 for $101 each.The outside supplier is known for quality and reliability.Assume that direct labor is a variable cost,variable manufacturing overhead is really driven by direct labor-hours,and total fixed manufacturing overhead would not be affected by this decision.Bulan chronically has idle capacity.
Required:
Is the offer from the outside supplier financially attractive? Why?

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Question

Bulan Inc.makes a range of products.The company's predetermined overhead rate is $20 per direct labor-hour,which was calculated using the following budgeted data:
 
Component T6 is used in one of the company's products.The unit product cost of the component according to the company's cost accounting system is determined as follows:
 C:\Users\user\Dropbox\Quizplus Parsing Documents\To Be Parsed\Done Farah\TB2461,Introduction to Managerial Accounting 6th Edition by Eric Noreen\Brewer_7e_PrintFile_TestBank_File\Brewer_7e_PrintFile_TestBank_File\Images\7e_BGN_CH10_TB_edit 02172015_198.png 
An outside supplier has offered to supply component T6 for $101 each.The outside supplier is known for quality and reliability.Assume that direct labor is a variable cost,variable manufacturing overhead is really driven by direct labor-hours,and total fixed manufacturing overhead would not be affected by this decision.Bulan chronically has idle capacity.
Required:
Is the offer from the outside supplier financially attractive? Why?

Quizplus · Accepted Answer

The Answer of Bulan Inc.makes a range of products.The company's predetermined overhead rate is $20 per direct labor-hour,which was calculated using the following budgeted data:
 
Component T6 is used in one of the company's products.The unit product cost of the component according to the company's cost accounting system is determined as follows:
 C:\Users\user\Dropbox\Quizplus Parsing Documents\To Be Parsed\Done Farah\TB2461,Introduction to Managerial Accounting 6th Edition by Eric Noreen\Brewer_7e_PrintFile_TestBank_File\Brewer_7e_PrintFile_TestBank_File\Images\7e_BGN_CH10_TB_edit 02172015_198.png 
An outside supplier has offered to supply component T6 for $101 each.The outside supplier is known for quality and reliability.Assume that direct labor is a variable cost,variable manufacturing overhead is really driven by direct labor-hours,and total fixed manufacturing overhead would not be affected by this decision.Bulan chronically has idle capacity.
Required:
Is the offer from the outside supplier financially attractive? Why?

Bulan IncMakes a Range of Products