Case 1 Micro Manufacturing Company makes microwave ovens. The control panel for the YXG-120 model oven is currently manufactured. The manufacturing costs for 5,000 control units made during the accounting period just completed presented below: Total Cost $ Direct materials Direct labor Manufacturing overhead (70% fixed, 30% variable) Variable administrative Total 120,000 80,000 100,000 20,000 320,000 A supplier has offered to sell Micro Manufacturing the oven control panels at a cost of $54 each. All fixed costs are sunk costs and other costs will remain the same per unit. The company expects to use 5,000 oven control panels in the coming year. Required: 1. Should Micro Manufacturing buy or purchase the oven control panels? 2. If Micro Manufacturing buys the control panels instead of manufacturing them, what would be the effect on net income? Solution