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ABC Company manufactured 6 , 0 0 0 units of a component part that is used in its product and incurred the following costs: Another
ABC Company manufactured units of a component part that is used in its product and incurred the following costs: Another company has offered to sell the same component part to the company for $ per unit. If the ABC Company accepts this offer, all variable manufacturing costs will be eliminated, but only the $ of fixed manufacturing overhead costs will be eliminated. If the component part is purchased from the outside firm, ABC Company has the opportunity to use the factory equipment to produce another product which is estimated to have a contribution margin of $ Instructions a Prepare an incremental analysis report for ABC Company which can serve as informational input into this makeor buy decision. b Should ABC Company buy the products from the outside supplier? Justify your answer. c What are the qualitative factors that ABC will have to consider when making this decision?
ABC Company manufactured units of a component part
that is used in its product and incurred the following costs:
Another company has offered to sell the same component part to
the company for $ per unit. If the ABC Company accepts this
offer, all variable manufacturing costs will be eliminated, but
only the $ of fixed manufacturing overhead costs will be
eliminated. If the component part is purchased from the outside
firm, ABC Company has the opportunity to use the factory
equipment to produce another product which is estimated to
have a contribution margin of $
Instructions
a Prepare an incremental analysis report for ABC Company
which can serve as informational input into this makeor
buy decision.
b Should ABC Company buy the products from the outside
supplier? Justify your answer.
c What are the qualitative factors that ABC will have to
consider when making this decision?
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