Part B

The Real Company specialises in producing wooden products including wooden caskets. Real Companys costs to produce 500 caskets annually are:

Direct materials 5,000

Direct labor 6,000

Variable overhead 4,000

Fixed overhead 11,000

An outside supplier has offered to sell Real Company similar caskets for 32.00 each. If the caskets are purchased from the outside supplier, 1,000 of annual fixed overhead could be avoided and the facilities now being used could be rented to another company for 1,500 per year.

Required

a. Compute how much it costs Real Company to produce a casket. (8 marks)

b. Based only on your answer in (a) should Real Company make or buy the caskets? (2 marks)

c. Briefly describe other factors the company should before making the decision to buy. (5 marks)