Question
This is a make or buy problem that has all of the characteristics that are illustrated in the Make or Buy lecture and study problems
This is a make or buy problem that has all of the characteristics that are illustrated in the Make or Buy lecture and study problems 6-B1, 6-46, and Extra #4. Note that I do not ask you for the total costs if the firm makes and the total costs if the firm buys, but instead I ask you for the difference between these two total cost numbers. Make sure that you read the question carefully so that you can attach the correct sign (+ or -) to your numerical answer. ______________________________________________________ Oxford Engineering manufactures small engines. The engines are sold to manufacturers who install them in such products as lawn mowers. The company currently manufactures all the parts used in these engines but is considering a proposal from an external supplier to supply the starter assembly used in these engines.
The starter assembly is currently manufactured in Division 3 of Oxford Engineering. Last year, Division 3 manufactured 158,000 starter assemblies, but over the next several years, it is expected that 197,000 assemblies will be needed each year. Total costs related to the starter assembly for last year were as follows:Direct material | |
Direct labor | |
Total overhead | |
Total |
- 40% of total overhead was variable.
- $116,000 of the fixed overhead were allocated costs that will continue even if the production of the starter assembly is discontinued.
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