Goof-E Corporation currently manufactures a subassembly for its main product. The costs per unit are as follows:
Direct materials |
$3.40 |
Direct labour |
$29.80 |
Variable overhead |
$16.10 |
Fixed overhead |
$25.20 |
Total costs |
$74.50 |
Mouse Corp. has contacted Goof-E with an offer to sell it 4,700 subassemblies for $55.20 each.
a.
Make | Buy | Difference | |
Direct Materials | $ 3.40 | $ 3.40 | |
Direct Labor | $ 29.80 | $ 29.80 | |
Variable Overhead | $ 16.10 | $ 16.10 | |
Fixed Overhead | $ 25.20 | $ 25.20 | $ - |
Purchase Price | $ 55.20 | $ -55.20 | |
Total Cost | $ 74.50 | $ 80.40 | $ -5.90 |
Goof-E should make the subassemblies
Qualitative things to be considered
Quality of product to be delivered
Capability of company to deliver the goods at time of appropriate
quality for required quantity
The company should keep on making the subassemblies
b.
Make | Buy | Difference | |
Direct Materials | $ 3.40 | $ 3.40 | |
Direct Labor | $ 29.80 | $ 29.80 | |
Variable Overhead | $ 16.10 | $ 16.10 | |
Fixed Overhead | $ 25.20 | $ 14.80 | $ 10.40 |
Purchase Price | $ 55.20 | $ -55.20 | |
Total Cost | $ 74.50 | $ 70.00 | $ 4.50 |
Yes decision is changed, since fixed overhead per unit decreased, company should buy
Goof-E Corporation currently manufactures a subassembly for its main product. The costs per unit are as...
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