An outside company Calgary Ltd made an offer to provide the part at $50. Some of the managers felt that this may reduce cost and thus that component can be be bought from outside and discontinue production of the component.

If the company purchases from outside , it will save $5.00 per in fixed overhead per unit and $2.00 on variable cost per unit and in addition the company can lease part of the facilities for $4200.

Based upon relevant cost differences, should ABC company make or buy the component . Show the calculation

Management of Bottleneck company is assessing if the company should continue manufacturing a part that the company needs when manufacturing a car. Based on its financial report, it seems it costs the company $45 per unit to make the component. The cost is broken in the following manner $ 20,000 2500 $28.00 $18,000 Raw Materials Direct Labor hours Hourly rate paid to workers Variable Manufacturing Overhead Fixed Manufacturing Overhead Rent [factory] Utilities [Factory] Indirect materials Indirect labour Units manufactured $ 18,500 $ 2,800 $6,500 $ 12,300 2000