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The Cato Corporation produces an executive jet for which it currently manufactures a fuel valve; the cost of the valve is indicated below: Variable costs
The Cato Corporation produces an executive jet for which it currently manufactures a fuel valve; the cost of the valve is indicated below: Variable costs Direct material Direct labor Variable overhead Total variable costs Fixed costs Depreciation of equipment Depreciation of building Supervisory salaries Total fixed costs Total cost Cost per Unit Total incremental cost $942 614 298 $1,854 485 204 297 986 $2,840 The company has an offer from Duvall Valves to produce the part for $2,056 per unit and supply 980 valves (the number needed in the coming year). If the company accepts this offer and shuts down production of valves, production workers and supervisors will be reassigned to other areas where, unfortunately, they really are not needed. The equipment cannot be used elsewhere in the company, and it has no market value. However, the space occupied by the production of the valve can be used by another production group that is currently leasing space for $55,890 per year. Should the company make or buy the valve? What is the total incremental cost of buying valies?
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