Make or Buy Analysis

Vertous Ltd produces their own light bar systems and ram bars that are installed on Emergency Vehicles. Below you are given the following costs involved in the manufacture and installation of each light bar and Ram Bar. The company is deciding whether to buy the lightbars pre-made from a USA Supplier rather than manufacturing it.

Using the table below prepare the Make or Buy Analysis using the following assumptions:

1. Only the Lightbar is going to be outsourced, the Ram bar is still being produced. The Ram bar still uses 40% of the overhead costs.
2. The special Equipment is being used in multiple product lines for electronics for emergency vehicles.
3. The $1,912 is based on the installation on 1,500 emergency vehicles.
4. The outside supplier has offered to provide 1,500 lightbar systems for a cost of $1,250 per system.

Product Costing: Light Bar System and Ram Bar - Making vs Buy
	Cost per Unit	Cost of 1,500
	Make	Buy
Outside Purchase Price	$1,250
Direct Materials (Ram Bar)	$360
Direct Materials (Light Bar System)	$550
Direct Labour (Ram Bar)	$250
Direct Labour (Light Bar System)	$650
Variable Overhead	$7
Installer's Salary	$20
Depreciation of Special Equipment	$50
Supervisor's Salary	$5
General Factory Overhead	$20
Unit Product Cost	$1,912
Total Avoidable Cost:
Cost of Buying the Part:
Should Vertous Ltd make or buy the Lightbars