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Bale Inc

Accounting

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Bale Inc. makes a range of products. The company's predetermined overhead rate is $20 per direct labor-hour, which was calculated using the following budgeted data: Variable manufacturing overhead S140,000 Fixed manufacturing overhead 5560,000 Direct labor-hours 35,000 Component B26 is used in one of the company's products. The unit product cost of the component according to the company's cost accounting system is determined as follows: Direct materials S 45.00 Direct labor 32.00 Manufacturing overhead applied 40.00 Unit product cost S117.00 An outside supplier has offered to supply component B26 for $101 cach. The outside supplier is known for quality and reliability. Assume that direct labor is a variable cost, variable manufacturing overhead is really driven by direct labor-hours, and total fixed manufacturing overhead would not be affected by this decision. Bale chronically has idle capacity Required (10 Marks) 1. Is the offer from the outside supplier financially attractive? Why? Show calculations! 2. What are the probable reasons for a company to buy inputs from outsiders even though "making is cheaper to them? 3. What are the probable reasons for a company to make their inputs even though "buying from outside supplier" is cheaper to them?