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Should we make or buy this product?? Richard Company makes 30,000 units per year of a part it uses in the products it manufactures. The

image text in transcribed Should we make or buy this product??

Richard Company makes 30,000 units per year of a part it uses in the products it manufactures. The unit product cost of this part is computed as follows: \begin{tabular}{l|r|} \hline Direct Materials & 21.30 \\ \hline Direct Labor & 21.20 \\ \hline Variable manufacturing overhead & 1.90 \\ \hline Fixed manufacturing overhead & 26.70 \\ \hline Unit product Cost & 71.10 \\ \hline \end{tabular} An outside supplier has offered to sell the company all of these parts it needs for $57.80 a unit. If the company accepts this offer, the facilities now being used to make the part could be used to make more units of another product that is in high demand. The additional contribution margin on this other product would be $200,000. If the part was purchased from the outside supplier, all of the direct labor cost of the part would be avoided. However, \$21.20 of the fixed manufacturing overhead cost being applied to the part would continue even if the part were purchased from the outside supplier. This fixed manufacturing overhead cost would be applied to the company's remaining products

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