Question
Company A currently buys a component for one of its products at P22 per unit. Company A needs 32,000 units of the component in the
Company A currently buys a component for one of its products at P22 per unit. Company A needs 32,000 units of the component in the coming year. The product will be redesigned, so that the component will not be needed beyond the coming year. The production manager believes that the company could make the component with P15,000 of materials cost and P13,000 of direct labor and variable overhead costs for the first batch of 1,000 units. Variable overhead is related to direct labor. Making the component involved no incremental fixed costs because the company could use existing equipment. The production manager expects 80% learning rate. Determine the financial advantage/(disadvantage) should Company A make the component.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started