Question
The management of ANP Ltd has asked for your assistance in deciding whether to continue manufacturing a part or to buy it from an outside
The management of ANP Ltd has asked for your assistance in deciding whether to continue manufacturing a part or to buy it from an outside supplier. The part, called PZ4, is a component of ANPs finished product. An analysis of the accounting records and the production data revealed the following information for the current year: I. Two (2) employees are assigned to the production department and work full time (1,940 hours each per year) producing PZ4. Each employee is paid $21 per hour; II. The cost of materials per PZ4 unit is $4.30 per unit; III. Production of PZ4 also includes other miscellaneous variable cost of $1.22 per unit. All the above manufacturing costs will be eliminated if Co Ltd outsourced PZ4 from an outside supplier. IV. If PZ4 is outsourced, Co Ltd will need to hire a part-time dispatch employee at a cost of $18,520 per year; V. The lowest price for PZ4 from an outside supplier is $14 per unit; VI. Delivery costs will be $1.00 per unit; VII. The production department produced 12,000 units of PZ4. Required:
a) Should ANP Ltd make or buy the PZ4 part? Please provide your answer in the table below. Please do not provide for any workings. Leave blank any cells that do not require an answer. (Please round your answers to whole dollar value.)
Make Buy Labour Cost $L Material $ Miscellaneous Costs Purchase price $ Delivery cost $ $ Part-time employee Total b) The company should choose the Joption since this option represents a $l savings
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