Question

The Southern Bell Company manufactures 2,000 telephones per year. The full manufacturing costs per telephone are as follows:

Direct materials $2
Direct labor 8
Variable manufacturing overhead 6
Average fixed manufacturing overhead 6
Total $22

The Illinois Bell Company has offered to sell Southern Bell Company 2,000 telephones at $15 per unit. If Southern Bell accepts the offer, $8,000 of fixed overhead will be eliminated. Southern Bell should:

a. Make the telephones, the savings is $2,000.
b. Buy the telephones, the savings is $10,000.
c. Buy the telephones, the savings is $12,000.
d. Make the telephones, the savings is $12,000

Answer 1

Answer:

The company should buy the units because it will save $10,000.-

Explanation:

Giving the following information:

Make in-house:

Unitary variable cost= 2 + 8 + 6= $16

Avoidable fixed cost= $8,000

Buy:

Unitary cost= $15

First, we will determine the total cost of each option:

Make in house= 2,000*16 + 8,000= $40,000

Buy= 15*2,000= $30,000

The company should buy the units because it will save $10,000.-

Answer 2

b. Buy the telephones, the savings is $10,000.

The Meaning or Definition of Direct Materials. (Cost Accounting). Direct materials are those materials which could be identified on the product and can be conveniently measured and directly charged of the product. so, these materials directly enter the product and form a part of the finished product.

Giving the following information:

Make in-house:

Unitary variable cost= 2 + 8 + 6= $16

Avoidable fixed cost= $8,000

Buy:

Unitary cost= $15

First, we will determine the total cost of each option:

Make in house= 2,000*16 + 8,000= $40,000

Buy= 15*2,000= $30,000

The company should buy the units because it will save $10,000.

Examples of direct materials include the following:

• Wood used to make the chair
• Glass used to make windows
• Fabric used to make furniture

Learn more about direct materials here https://brainly.com/question/26498173

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