Question
A company is planing to introduce a new portable TV to its existing product line. Management must decide wheter to make the TV case or
A company is planing to introduce a new portable TV to its existing product line. Management must decide wheter to make the TV case or buy it from an outside supplier. The lowest outside price is $100. If the case is produced internally, the company will have to purchase new equipment that will yield annual depreciation of $130,000. The company will also need to rent a new production facility at $200,000 a year. At 20,000 cases per year, a preliminary analisys of production costs shows the following (NOTE: THE NEW COSTS ARE INCLUDED IN THE NUMBERS GIVEN BELLOW) Per Case Direct Material $ 40.00 Direct Labor 32.00 Variable Overhead 10.00 Equipment Depreciation 6.50 Building rental 10.00 Allocated fixed overhead 7.50 --------- Total cost $106.00 ====== Required: Determine whether the company should make the cases or buy them from the outside supplier PLEASE BE SPECIFIC HOW YOU GET THE NUMBERS
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