Question

Coronado Industries can produce 100 units of a component part with the following costs: Direct Materials Direct Labor Variable Overhead Fixed Overhead $11000 9500 10000 11000 If Coronado Industries can purchase the component part externally for $35000 and only $4000 of the fixed costs can be avoided, what is the correct make-or-buy decision? Buy and save $4500 Make and save $2500 Make and save $500 Buy and save $2500

Answer 1

only Relevant costs should be considered. cost of making a Direet materials Direct labour Wariable OH = 11000 a 9500 = 10000 30500 Fixed costs are incurred isrespective of the production. cost of Buying >> Purchase cost = $35000 o savings in Fixed ? ( $4000) $31000 cost of making is less than cost of Buying T Male and save $500 (31000 - 30500) costs