(Make-or-buy decision) Bozeman Plastics manufactures plastic housings for com¬ puter printers. One of the parts required to manufacture a printer case is a metal latch. Currently Bozeman produces all metal latches that it requires (60,000 units annually). The company’s management is considering purchasing the part from an external vendor, Arlington Mechanical. The following data are available for making the decision:

a. Assuming all of Bozeman’s internal production costs are avoidable if it pur¬ chases rather than makes the latch, what would be the net annual cost ad¬ vantage to Bozeman of purchasing?

b. Assume that some of Bozeman’s fixed overhead costs could not be avoided if it purchases rather than makes the latches. How much of the fixed overhead must be avoidable for the company to be indifferent between making and buying the component?LO1

Transcribed Image Text:

Cost per unit to manufacture: Direct material $.20 Direct labor .17 Variable overhead .09 Fixed overhead-applied .14 Total cost $.60 Cost per unit to buy: Purchase price $.49 Freight charges .01 Total cost $.50