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Great Products Company currently outsources a relay switch that is a component in one of its products. The switches cost $26 each. The company is
Great Products Company currently outsources a relay switch that is a component in one of its products. The switches cost $26 each. The company is considering making the switches internally at the following projected annual production costs:
Unit-level material cost | $6 |
Unit-level labor cost | $5 |
Unit-level overhead | $4 |
Batch-level set-up cost (8,000 units per batch) | $34,000 |
Product-level supervisory salaries | $42,000 |
Allocated facility-level costs | $29,000 |
The company expects an annual need for 8,000 switches. If the company makes the product, it will have to utilize factory space currently being leased to another company for $2,400 a month. If the company decides to make the parts, total costs will be:
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