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Outside Supplier Financials, Operating income, Overhead

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2. Is the offer from the outside supplier financially attractive? Why?

3. a) Prepare a report that shows the effect on the company's total net operating income of buying part A55 from the supplier rather than continuing to make it inside the company.
b) Which alternative should the company choose?

4. a) Determine the predetermined overhead rate if the predetermined overhead rate is based on the estimated amount of the allocation base.
b) Determine the underapplied or overapplied overhead for the year if the predetermined overhead rate if based on the estimated amount of the allocation base.
c) Determine the predetermined overhead rate if the predetermined overhead rate is based on the amount of the allocation base at capacity.
d) Determine the underapplied or overapplied overhead for the year if the predetermined overhead rate is based on the amount of the allocation base at capacity.

5. Determine the underapplied or overapplied overhead for the year if the predetermined overhead rate is based on the amount of the allocation base at capacity.

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Dear student,

EXPLANATION: 1
Answer to question no:2 The unit cost is 79.2. However, the fixed overhead portion of manufacturing overhead SHOULD NOT be
taken into account for the purpose of decision.Because, fixed cost is IRRELAVANT COST.
variable cost Theerefore, out of \$24 (manufacturing overhead), variable portion should be taken into consideration.
direct labour 25.2 Therefore variable portion of 24 is (24/700000)*70000= 2.4
57.6
This is other way of computing 2.4