Question Description

I’m working on a accounting practice test / quiz and need an explanation and answer to help me learn.

Question: 1 Junior Company currently buys 30,000 units of a part used to manufacture its product at $40 per unit. Recently the supplier informed Junior Company that a 20% increase will take effect next year. Junior has some additional space and could produce the units for the following per-unit costs (based on 30,000 units):

Direct materials


Direct labor


Variable overhead


Fixed overhead




If the units are purchased from the supplier, $200,000 of fixed costs will continue to be incurred. In addition, the plant can be rented out for $20,000 per year if the parts are purchased externally.

Required: Should Junior Company buy the part externally or make it internally?

Question: 2 Favor Company budgeted the following amounts:

Variable costs of production:  Direct materials6 pounds @ $1.25 per pound Direct labor0.75 hours @ $16.00 per hour Variable overhead0.75 hours @ $2.65 per hourFixed overhead:  Materials handling




Required:  Prepare a flexible budget for 1,500 units, 1,800 units and 2,100 units.