Exam 11: Decision Making and Relevant Information

Nall Custom Pool Inc. needs 10,000 units of a certain part for its manufacturing process. It can buy the part from Wholesale Pool Supplies and Equipment for $53. Nall's plant can manufacture the part for the following costs per unit: If Nall buys the part from Wholesale, 60 percent of the fixed manufacturing overhead applied will continue to be incurred. Required: What is the relevant dollar difference between making and buying the part?

When considering a project that will require production using otherwise idle resources, which of the following are true?

When choosing between two alternatives, costs that do not differ between the two alternatives can be considered to be irrelevant to that decision.

Which of the following would not be considered in a make or buy decision?

Lewis Auto Company manufactures a part for use in its production of automobiles. When 10,000 items are produced, the costs per unit are: Monty Company has offered to sell Lewis Auto Company 10,000 units of the part for $120 per unit. The plant facilities could be used to manufacture another part at a savings of $180,000 if Lewis Auto accepts the supplier's offer. In addition, $20 per unit of fixed manufacturing overhead on the original part would be eliminated. Required: a. What is the relevant per unit cost for the original part? b. Which alternative is best for Lewis Auto Company? By how much?

A one-time-only special order decision