Question
Benitez Company currently outsources a relay switch that is a component in one of its products. The switches cost $23 each. The company is considering
Benitez Company currently outsources a relay switch that is a component in one of its products. The switches cost $23 each. The company is considering making the switches internally at the following projected annual production costs:
Unit-level material cost | $ | 4 | |
Unit-level labor cost | $ | 3 | |
Unit-level overhead | $ | 2 | |
Batch-level set-up cost (6,000 units per batch) | $ | 32,000 | |
Product-level supervisory salaries | $ | 41,000 | |
Allocated facility-level costs | $ | 27,000 | |
The company expects an annual need for 6,000 switches. If the company makes the product, it will have to utilize factory space currently being leased to another company for $2,200 a month. If the company decides to make the parts, total costs will be:
Multiple Choice
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$25,600 less than if the switches are purchased.
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$15,400 more than if the switches are purchased.
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$42,400 more than if the switches are purchased.
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$27,000 less than if the switches are purchased.
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