1 Great Company manufactures 60, 000 units of part XL 40 each year for use on its production line The following are the costs of making part XL 40 Total CostsCost per 60, 000 unitsunit Direct materialBr 480, 000Br 8 Direct labor360, 0006 Variable factory overhead (FOH) 180, 0003 Fixed FOH 360, 000 6 Total manufacturing costs Br 1, 380, 000 Br 23 Another manufacturer has offered to sell the same part to Great for Br 21 each The fixed overhead consists of depreciation, property taxes, insurance, and supervisory salaries The entire fixed overhead would continue if the Great Company bought the component except that the cost of Br 120, 000 pertaining to some supervisory and custodial personnel could be avoided Instructions a)Should the parts be made or bought Assume that the capacity now used to make parts internally will become idle if the pats are purchased b)Assume that the capacity now used to make parts will be either (i) be rented to nearby manufacturer for Br 60, 000 for the year or (ii) be used to make another product that will yield a profit contribution of Br 250,000 per year Should the company purchase them from the outside supplier

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1  Great Company manufactures 60, 000 units of part XL 40 each year for use on its production line  The following are the costs of making part XL 40  Total CostsCost per 60, 000 unitsunit Direct materialBr  480, 000Br 8 Direct labor360, 0006 Variable factory overhead (FOH) 180, 0003 Fixed FOH 360, 000 6 Total manufacturing costs Br  1, 380, 000 Br  23 Another manufacturer has offered to sell the same part to Great for Br 21 each  The fixed overhead consists of depreciation, property taxes, insurance, and supervisory salaries  The entire fixed overhead would continue if the Great Company bought the component except that the cost of Br  120, 000 pertaining to some supervisory and custodial personnel could be avoided  Instructions  a)Should the parts be made or bought  Assume that the capacity now used to make parts internally will become idle if the pats are purchased  b)Assume that the capacity now used to make parts will be either (i) be rented to nearby manufacturer for Br  60, 000 for the year or (ii) be used to make another product that will yield a profit contribution of Br  250,000 per year  Should the company purchase them from the outside supplier

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1. Great Company manufactures 60, 000 units of part XL-40 each year for use on its production line. The following are the costs of making

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