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Guillory Company produces a part that has the following costs per unit: Direct material $ 9 Direct labor 4 Variable overhead 2 Fixed overhead 6
Guillory Company produces a part that has the following costs per unit: Direct material $ 9 Direct labor 4 Variable overhead 2 Fixed overhead 6 Total 21 Homeland Corporation can provide the part to Guillory for $23 per unit. Guillory Company has determined that 50 percent of its fixed overhead would continue if it purchased the part. However, if Guillory no longer produces the part, it can rent that portion of the plant facilities for $70,000 per year. Guillory Company currently produces 12,000 parts per year. Set up your information and SHOW YOUR WORK to show which alternative is preferable and by what margin. Once you've done your "make or buy" calculations, you should be able to choose one of the following answers: a. Make the part because they would make $24,000 more if they made the part b. Make the part because they would make $60,000 more if they made the part c. Buy the part because they would make $10,000 more if they bought the part d. Buy the part because they would make $46,000 more if they bought the part
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