Dana Corporation , based in Toledo, Ohio, is a global manufacturer of highly engineered products

that serve industrial, vehicle, construction, commercial, aerospace, and semiconductor markets. It

frequently subcontracts work to other manufacturers, depending on whether Danas facilities are fully

occupied. Suppose Dana is about to make some final decisions regarding the use of its manufacturing

facilities for the coming year.

The following are the costs of making part EC113, a key component of an emissions control system:

Total Cost for 65,000 Units Cost per Unit

Direct materials $ 585,000 $ 9

Direct labor 715,000 11

Variable factory overhead 650,000 10

Fixed factory overhead 195,000 3

Total manufacturing costs $2,145,000 $33

Another manufacturer has offered to sell the same part to Dana for $28 each. The fixed overhead

consists of depreciation, property taxes, insurance, and supervisory salaries. All the fixed overhead

would continue if Dana bought the component except that the cost of $130,000 pertaining to some

supervisory and custodial personnel could be avoided.

1. Assume that the capacity now used to make parts will become idle if the parts are purchased.

Should Dana buy or make the parts? Show computations.

2. Assume that the capacity now used to make parts will either (a) be rented to a nearby manufac-

turer for $25,000 for the year or (b) be used to make oil filters that will yield a profit contribution

of $15,000. Should Dana buy or make part EC113? Show your computations