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APPLY THE CONCEPTS: Calculating per-unit manufacturing cost in a make-or-buy decision Global Corporation, a high-end digital camera manufacturer, currently purchases a component part from an
APPLY THE CONCEPTS: Calculating per-unit manufacturing cost in a make-or-buy decision Global Corporation, a high-end digital camera manufacturer, currently purchases a component part from an outside company at a price of $125 per unit. Whi the quality of the component has always been very high, Global Corporation's management believes it might be possible to produce a superior component internally at a cost lower than $125. The accounting department has provided an estimate of the per-unit manufacturing cost of the component Direct materials Direct labor Variable factory overhead Fixed factory overhead 46 39 23 20 $128 The company's controller believes that the estimate may be incorrect, because Global Corporation has excess manufacturing capacity to produce the components without incurring additional fixed factory overhead. What per-unit manufacturing cost should be used in determining whether Global Corporation should purchase the components from an outside company or manufacture them internally? APPLY THE CONCEPTS: Calculating differential income in a make-or-buy decision Complete the table below to compare the per-unit cost for Global Corporation to make the component and the per-unit cost to buy the component. Make or Buy Decisions Purchase price of an instrument panel Differential cost to manufacture: Direct materials Direct labor Variable factory overhead Cost savings from manufacturing an instrument panel Based on your analysis, it is better for Global Corporation t the component. Doing so will save the company make buy
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