(TCO D) Lindon Company uses 4,500 units of Part X each year as a component in th
ID: 2345779 • Letter: #
Question
(TCO D) Lindon Company uses 4,500 units of Part X each year as a component in the assembly of one of its products. The company is presently producing Part X internally at a total cost of $69,000 as follows:Direct materials $16,000
Direct labor 18,000
Variable manufacturing overhead 10,000
Fixed manufacturing overhead 25,000
Total costs $69,000
An outside supplier has offered to provide Part X at a price of $11 per unit. If Lindon stops producing the part internally, one third of the manufacturing overhead would be eliminated.
Required: Prepare a make-or-buy analysis showing the annual advantage or disadvantage of accepting the outside supplier's offer. (Points : 30)
Explanation / Answer
if they will make the part X then Total cost = $69,000 if they will buy the product Manufacturing overhead will become two third manufacturing overhead = (10,000+25,000)*2/3 =$23,333.33 Purchase price = 11*4,500 = $49,500 total cost incurred = 23,333.33 +49,500 = $72,833.33 so tola cost in case of make will be less ,so we will make the Part X (answer)
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