What is the net total dollar advantage (disadvantage) of purchasing the part rather than making it?

A) $(64,000) .
B) $264,000.
C) $548,000.
D) $(328,000) .

Question

What is the net total dollar advantage (disadvantage) of purchasing the part rather than making it?A) $(64,000) .B) $264,000.C) $548,000.D) $(328,000) .

Cassandra Ocean · Accepted Answer

Final Answer : A, Explanation :  The net total dollar advantage of purchasing the part rather than making it is calculated by comparing the costs of making versus buying the part, including the opportunity cost of not producing the other high-demand product.Cost to make 40,000 units:- Direct materials: $11.30/unit- Direct labor: $22.70/unit (avoidable if bought)- Variable manufacturing overhead: $1.20/unit- Fixed manufacturing overhead (avoidable): $2.80/unit ($24.70 - $21.90 of unavoidable fixed costs)Total avoidable cost per unit = $11.30 + $22.70 + $1.20 + $2.80 = $38.00Total avoidable cost for 40,000 units = 40,000 * $38.00 = $1,520,000Cost to buy 40,000 units = 40,000 * $46.20 = $1,848,000Opportunity cost (additional contribution margin from using the facilities for another product): $264,000Net cost of making = $1,520,000Net cost of buying = $1,848,000 - $264,000 (opportunity cost) = $1,584,000Net advantage of buying over making = $1,520,000 - $1,584,000 = $(64,000)Therefore, there is a $64,000 disadvantage to buying the part instead of making it.

What is the net total dollar advantage (disadvantage) of purchasing the part rather than making it?

A) $(64,000) .
B) $264,000.
C) $548,000.
D) $(328,000) .

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