Question

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 18,000 units of the module per year for $25.00 each. The following information pertains to MSi's production of the control modules: $10 7 Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Total cost per unit 8 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

The answer has been presented in the supporting sheet. All the parts has been solved with detailed explanation and format. For detailed answer refer to the supporting sheet.

Answer 2 Part 1) 3 Differnce in cost = relevant cost of pruchase - relevant cost of buying = (18000* (10+7+7)) - (18000*25) 5 = - $ 18000 7 Thus the correct answer is - $ 18000 9 Part 2) 10 The correct answer is 11 Make 12 13 Expanation 14 as relevant cost of making the product in less than buying it 16 Part 3a) 17 Differnce in cost = relevant cost of pruchase - relevant cost of buying 18 = ((18000*(10+7+7))+28000) - (18000*25) 19 = $ 10000 21 Thus the correct answer is $ 10000 23 Part 3b) 24 The correct answer is 25 Buy 20 27 Explanation 28 as relevant cost of making the product is higher than buying it, so it is better to buy the product