14 Make or buy decision: Relevant Trailbla and the that the using th to prod of

Question

14 Make or buy decision: Relevant Trailbla and the that the using th to prod of mac differer materia two ty and qualitative factors Lo2 Jain Simmons Company needs 10000 units ofa used in production. If Jain Simmons buys the part fro Company instead of making it themselves, Jain Simmone not use the present facilities for another manufa Sixty per cent of the fixed overhead applied will continue regardless of what decision is made. The following quantitat certain part to be cturing a cti information is available regarding the situation presented: re Cost to make the part: Sales Direct materials Direct labour Variable overhead Fixed overhead applied Less: $ 6 24 12 15 $57 $53 I. ld is Cont Requ Requ Cost to buy the part: Required a In deciding whether to make or buy the part, what are Jain b Which altermative (make or buy) is more desirable for Jain c Suppose that Jain Simmons Company is in an area of the Simmons's total relevant costs to make the part? Simmons and by what amount? country with high unemployment and that it is unlkey na displaced employees will find other employment. How that impact your decision? 17 DeB

Explanation / Answer

Part a Total relevant cost to make Direct materials $6 Direct labour 24 Variable overhead 12 Fixed Overhead applied - 40% 6 Total relevant cost to make $48 Part b Since cost to make is $48 only while cost to by is $53, making is more desirable it results in saving of $5 per unit or $50000 in total. Part c In that case also Making would be desirable for the sake of employnet and social responsibility.

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