Question
Case Study: Assume that a firm has prepared the following cost estimates for the manufacture of a sub assembly component based on an annual production
Case Study:
Assume that a firm has prepared the following cost estimates for the manufacture of a sub assembly component based on an annual production of 8,000 units.
Per Unit
Total
Direct materials
$5
$40,000
Direct labor
$4
$32,000
Variable factory overhead applied
$4
$32,000
Fixed factory over head applied (150% of direct labor cost)
$6
$48,000
Total Cost
$19
$152,000
The supplier has offered to provide the subassembly at a price of $16 each.Two-thirds of fixed factory overhead, which represents executive salaries, rent, depreciation, and taxes, continue regardless of the decision.Should the company buy or make the product?
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