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29 December, 15:24

Concord Corporation can produce 100 units of a component part with the following costs: Direct Materials $21000 Direct Labor 5500 Variable Overhead 19000 Fixed Overhead 11000 If Concord Corporation can purchase the units externally for $50000, by what amount will its total costs change?

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  1. 29 December, 15:31
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    If Concord Corporation purchase from outside it total cost will increase by $4500.

    Explanation:

    Cost of producing the units using current production:

    Direct Material Cost $21000

    Direct Labour Cost $5500

    Variable Overhead Cost $19000

    Total Cost of Production $45500

    So, Purchase cost minus production cost

    Gives $50000 - $45500 increase in cost purchase over production by $4500

    Note:

    Fixed cost is irrelevant for Concord Corporation either purchase or produce it will remain same.
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