A21. (Short-term decisions—make or buy) Samsonov Corp. is trying to decide whether to make packaging for...
A21. (Short-term decisions—make or buy) Samsonov Corp. is trying to decide whether to make packaging for its products itself, or whether to outsource the materials to the Moltke Corp. Its current cost to produce 250,000 packages is:
Direct materials $50,000
Direct labor $30,000
Variable manufacturing overhead $24,000
Fixed manufacturing overhead $46,000
Total manufacturing cost $150,000
Cost per package $0.60
Moltke Corporation offers to sell packages to Samsonov for $0.50 each.
A. Based only on financial considerations, and assuming the fixed costs are not avoidable, should Samsonov buy from Moltke? Why, or why not?
B. Assume that Samsonov could avoid $30,000 of
the fixed costs if it stopped producing its own packages. Based
only on financial considerations, should Samsonov buy from Moltke?
Why, or why not?
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