Q1. Glenn Company makes 40,000 motors to be used in the production of its power lawn mowers. The cost per motor at this level of activity is as follows:
direct materials .............. $12.00
direct labor .................. 9.25
variable overhead ............. 4.60
fixed overhead ................ 5.00
total ......................... $30.85
The motor has recently become available from an outside supplier for $29 per motor. If Glenn purchases the motor from the outside supplier, the space that is currently being used to manufacture the motor can be rented out for $30,000 per year.
Assume that 40% of the fixed overhead costs will be eliminated if the motor is purchased from the outside supplier.
Calculate the selling price per unit charged by the outside supplier that would make Glenn economically indifferent between making and buying the motor. Enter your answer with two places after the decimal point (i.e., $56.70).
Q2.Orr Company makes and sells a single product called a Bik. It takes three yards of Material A to make one Bik. Budgeted production of Biks for the next three months is as follows:
Budgeted Biks to be Produced
February 15,000 units
March 18,000 units
April 17,000 units
The company wants to maintain monthly ending inventories of Material A equal to 20% of the next month's production needs. The cost of material A is $1.25 per yard. The company is in the process of preparing a direct materials purchases budget.
Calculate the total cost of material A budgeted to be purchased in March. Do not use decimals in your answer.