wanson Company currently buys 30,000 units of a part used to manufacture its product at $40 per
Question:
wanson Company currently buys 30,000 units of a part used to manufacture its product at $40 per unit.Recently the supplier informed Swanson that a 20 percent increase will take effect next year.Swanson has some additional space and required facilities and could produce the units for the following per-unit costs (based on 30,000 units):
Direct materials $16
Direct labour12
Variable overhead12
Fixed overhead 10
If the units are purchased from the supplier, $200,000 of fixed costs will continue to be incurred.In addition, the facilities can be rented out for $20,000 per year if the parts are purchased externally.
Required:
Should Swanson Company buy the part externally or make it internally?Explain with detailed calculations.
Management Accounting
ISBN: 978-0132570848
6th Canadian edition
Authors: Charles T. Horngren, Gary L. Sundem, William O. Stratton, Phillip Beaulieu