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F. Naz
F. Naz, Chartered Accountant
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Management Accounting

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Management Accounting: Fair Engineering Company manufactures part QE767 used in several of its engine models. Monthly production costs for 10,000 units are as follows: Direct materials $ 80,000 Direct labor 20,000 Variable support costs 50,000 Fixed support costs 40,000 Total costs $190,000 It is estimated that 20% of the fixed support costs assigned to part QE767 will no longer be incurred if the company purchases the part from the outside supplier. Fair Engineering Company has the option of purchasing the part from an outside supplier at $16 per unit. 1. If Fair Engineering Company accepts the offer from the outside supplier, the monthly avoidable costs (costs that will no longer be incurred) total: A) $ 32,000. B) $ 82,000. C) $ 158,000. D) $190,000. 2. If Fair Engineering Company purchases 10,000 QE767 parts from the outside supplier per month, then its monthly operating income will: A) decrease by $2,000. B) increase by $30,000. C) decrease by $16,000. D) decrease by $58,000. Explanation: A) Avoidable costs $158,000 - ($16 × 10,000 units) = decrease of $2,000 3. The maximum price that Fair Engineering Company should be willing to pay the outside supplier for each unit of part QE767 is: A) $10. B) $15. C) $15.80. D) $16. 4. Which of the following does NOT need to be considered when evaluating a make-or-buy decision? A) savings from an alternative use of the production equipment B) the original cost of the production equipment C) the quality of the supplier's product D) the reliability of the supplier's delivery schedule
Submitted: 3 years ago.
Category: Homework
Expert:  F. Naz replied 3 years ago.
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F. Naz, Chartered Accountant
Category: Homework
Satisfied Customers: 4219
Experience: Experience with chartered accountancy
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Customer: replied 3 years ago.
This is the first time I used this service. I did not know that an edit to my question would charge my account again. I have the answers, but I missed #3. please tell me how you got 15.80.? Other than that, thanks for your help. I will ask more questions.

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