Quikcook Microwave Company currently manufactures the doors that it uses for its

Question

Quikcook Microwave Company currently manufactures the doors that it uses for its microwave ovens. The annual costs to manufacture the 40,000 doors needed each year are as follows: Total Cost Direct material $250,000 Direct labor 40,000 Variable manufacturing overhead 80,000 Fixed manufacturing overhead 320,000 Total $690,000 Delilah Glass Corporation has offered to provide Quikcook with all of its annual door needs for $14 per door. If Quikcook accepts this offer, only 40% of the fixed overhead above could be totally eliminated. Also, Quikcook has no alternative use for the idle facilities if the decision was made to go with Delilah's offer. Based on this information, would Quikcook be better off to make the doors or buy the doors and by how much?

Explanation / Answer

Manufacturing cost savings (as calculated in part 1) 498000 Cost of purchasing the part from outside (14*40000) (560000) Net disadvantage of buying (62000) (560000 - 498000) Quikcook should continue to make the doors.

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