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Structuring a Make-or-Buy Problem following: begin{tabular}{lcc} & Total Cost & Unit Cost hline Direct materials & $19,500 & $6.50 Direct labour & 10,500
Structuring a Make-or-Buy Problem following: \begin{tabular}{lcc} & Total Cost & Unit Cost \\ \hline Direct materials & $19,500 & $6.50 \\ Direct labour & 10,500 & 3.50 \\ Variable manufacturing overhead & 7,500 & 2.50 \\ Variable marketing overhead & 4,500 & 1.50 \\ Fixed plant overhead & 15,000 & 5.00 \\ \multicolumn{1}{|c|}{ Total } & $57,000 & $19.00 \end{tabular} Fixed overhead will continue whether the pouch is produced internally or externally. No additional costs of purchasing will be incurred beyond the purchase price. Required: 1. What are the alternatives for Leather Products? Make the product in house or buy it externally. 2. List the relevant cost(s) of internal production and of external purchase. The input in the box below will not be graded, but may be reviewed and considered by your instructor. 3. Which alternative is more cost effective? Make the units in-house By how much? 4. Now assume that 45 percent of the fixed overhead can be avoided if the units are purchased externally. Which alternative is more cost effective? Buy By how much
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