Tingstrom 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 B6 is used in one of the company's products.The unit cost of the component according to the company's cost accounting system is determined as follows: An outside supplier has offered to supply component B6 for $76 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.Tingstrom chronically has idle capacity.
Required:
Is the offer from the outside supplier financially attractive? Why?

Question

Tingstrom 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 B6 is used in one of the company's products.The unit cost of the component according to the company's cost accounting system is determined as follows:  An outside supplier has offered to supply component B6 for $76 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.Tingstrom chronically has idle capacity.
Required:
Is the offer from the outside supplier financially attractive? Why?

Quizplus · Accepted Answer

The Answer of Tingstrom 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 B6 is used in one of the company's products.The unit cost of the component according to the company's cost accounting system is determined as follows:  An outside supplier has offered to supply component B6 for $76 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.Tingstrom chronically has idle capacity.
Required:
Is the offer from the outside supplier financially attractive? Why?