Question

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?

Answer 1

If Concord Corporation purchase from outside it total cost will increase by $4500.

Step-by-step 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.