Standard Wage Rate Assignment | Top Universities

6) The ABC Company produces most of its own parts and components. The standard wage rate in the parts department is $30 per hour, the variable is applied at $ 20 per labor hour and fixed overheads are at a standard rate of $ 25 per hour. For its current year's output, the company will require a new part.

This part can be made in the parts department without any expansion of existing facilities. Nevertheless, it would be necessary to increase the cost of product testing and inspection by $500 per month. The estimated labor time for the new part is half an hour per unit. The raw material cost can be estimated at $60 per unit. The alternative choice before the company is to produce the part from an outside supplier at $90 per unit. The company has estimated that it will need 2000 new parts during the current year. (a) Advise the company whether it would be more economical to buy or make the new parts. Would your answer be different if the requirement of new parts was only 1000 parts? Get Accounting Homework Help Today.