Question
Quirch Inc. manufactures machine parts for aircraft engines. The CEO, Chucky Valters, was considering an offer from a subcontractor that would provide 3,700 units of
Quirch Inc. manufactures machine parts for aircraft engines. The CEO, Chucky Valters, was considering an offer from a subcontractor that would provide 3,700 units of product PQ107 for Valters for a price of $150,000. If Quirch does not purchase these parts from the subcontractor it must produce them in-house with the following unit costs:
Cost per Unit Direct materials $48 Direct labor 31 Variable overhead 14
In addition to the above costs, if Quirch produces part PQ107, it would have a retooling and design cost of $15,300. The relevant costs of producing 3,700 units of product PQ107 internally are:
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