BUY OR MAKE DECISION

Nikolas manufactures pillow cases at a unit selling price of 23 each. The sales budget for 2016 predicts that 2000 units will be sold.

The estimated manufacturing cost per unit in 2016:

Materials.9.60

Conversion Costs. 11.40

The pillow cases are produced in a single cost centre, the conversion cost rate per hour is 11.40 .

The cost center budget for Year X is:

VC

Operating labor83000

Other Variable costs..21000

FC

Three Managers 44000

Other Fixed costs...72000

These budgets reflect the normal annual sales of Pillow cases and other goods produced in this cost centre, If utilization falls to 75% on a regular basis, then one manager could be made redundant. A local business has offered to manufacture pillow cases for 21.

Show your workings if the Pillow cases should be bought or manufactured.