Question

E7-6 Analyzing Make-or-Buy Decision [LO 7-2, 7-4] MSI is considering outsourcing the production of the handheld control module used with some of its products. The company has received a bid from Monte Legend Co. (MLC) to produce 20,000 units of the module per year for $20.00 each. The following information pertains to MSI's production of the control modules: $10 Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Total cost per unit $27 MSI has determined that it could eliminate all variable costs if the control modules were produced externally, but none of the fixed overhead is avoidable. At this time, MSI has no specific use in mind for the space that is currently dedicated to the control module production. Required: 1. Compute the difference in cost between making and buying the control module. Difference in Cost

Answer 1

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Aus: Computation of difference in Costa MAKE BUY + 800,000 4 120,000 Diket materials (0000 x410) Sirut labor (2000x86) Vorsicable manufacturing Costs (20000k $ 3) Purchase Cost (20000 x 20). Total Cost $ 60,000 : $400,000 $ 400,000 $380,000 Offence in coste $400600 - $380,000 - $20,000 © MSI Continue to make MAKE BUY Diket material (700x410) €200,000 Sixent labor (dovoo X$62 $ 120,070 vorsiable manufacturing Cost $ 60000 ( Bodrox$3) Purchase Cost (20000 X820) opportunity cost $44,000 Total Cost $424,000 Diffencen im Cost :- $424,070 - $400,000 - $24,000 $400,000 $400,000