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3.) Babylon Manufacturing has recently started to manufacture sofa sets. In order to produce the metal parts of those sofa sets, the company established
3.) Babylon Manufacturing has recently started to manufacture sofa sets. In order to produce the metal parts of those sofa sets, the company established a department and incurred following costs in order to produce 12000 units metal parts last month. Direct Material ($10 per part) Direct Labor ($3 per part) Variable Overhead ($2 per part) Fixed Overhead Total Cost $ 120,000 36,000 24,000 28,000 208,000 Production manager is trying to decide on purchasing similar parts which are sold at $16 in the market. Using incremental analysis, determine whether Babylon Manufacturing should make the parts or buy under the following assumtions: a.) If the parts are bought from outside, all of the fixed overhead can be reduced (avoided). b.) If the parts are bought from outside, none of the fixed overhead can be reduced (avoided).
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