Question
3 (35 Points) McGraw Company uses 5,000 units of Part X each year as a component in the assembly of one of its products. The
3 (35 Points) McGraw Company uses 5,000 units of Part X each year as a component in the assembly of one of its products. The company is presently producing Part X internally at a total cost of $230,000, computed as follows: Direct materials $ 30,000 Direct labor 60,000 Variable manufacturing overhead 20,000 Fixed manufacturing overhead 120,000 Total cost $ 230,000 An outside supplier has offered to provide Part X at a price of $40 per unit. If McGraw Company stops producing the part internally, one-third of the fixed manufacturing overhead would be eliminated. Assume that direct materials and direct labor are variable costs. Required: 1. Prepare an analysis in total $ of the costs of making Part X versus accepting the outside supplier's offer and buying Part X. Cost Types Total Costs to Make Total Costs to Buy Total cost 2. Based on the analysis, should McGraw make part X or buy Part X from the outside supplier at $40 per unit? (Indicate "Make" or "Buy") What is the amount of the financial advantage of doing so
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