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Make or Buy B2 FavorPro Productions produces a component essential for its main product. The management is considering whether to make the component in-house or
Make or Buy B2 FavorPro Productions produces a component essential for its main product. The management is considering whether to make the component in-house or to buy it from an external supplier. The following information is provided: Current Production Costs for In-House Manufacturing of 3,000 units Direct Materials $590,000 Direct labor 610,000 Manufacturing overhead 648,000 Total Manufacturing Cost $1,848,000 FavorPro Productions's annual manufacturing overhead budget is 25% variable and 75% fixed. Atlead Construction, one of FavorPro Productions's reliable vendors, has offered to supply the component at a unit price of $480. FavorPro Productions anticipates needing 3,000 units of the component each year. 3. Assume the rental opportunity does not exist . What is the maximum price FavorPro Productions would be willing to pay Atlead Construction if FavorPro Productions requires a $30,000 savings a year before buying from an outside vendor? 4. What are some qualititative issues that FavorPro Productions should considering when considering whether they should continue to make the component or buy from an outside supplier
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