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Richardson, Inc. is going to introduce a new portable TV to its existing product line. Management must decide whether to make the case or buy
Richardson, Inc. is going to introduce a new portable TV to its existing product line. Management must decide whether to make the case or buy it from an outside supplier. The lowest outside price is $87. If the case is produced internally, the company will have to purchase new equipment that creates annual depreciation of $116,000. The company will also need to rent a new production facility at $145,000 a year. Assuming 20,000 cases per year, a preliminary analysis of the production costs shows the following: Per Case Direct materials $34.80 Direct labour 29.00 Variable overhead 8.70 Equipment depreciation 5.80 Building rental 7.25 Allocated fixed overhead 4.35 Total cost $89.90 (1) Determine whether the company should make the cases or buy them from an outside supplier. Why? (2) What decision should be made if only 15,000 cases are needed? Why? (3) Besides cost, what other factors should management consider
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