Len Corporation, a high-end digital camera manufacturer, currently purchases a c

Question

Len Corporation, a high-end digital camera manufacturer, currently purchases a component part from an outside company at a price of $269 per unit. While the quality of the component has always been very high, Len Corporation's management believes it might be possible to produce a superior component internally at a cost lower than $269. The accounting department has provided an estimate of the per-unit manufacturing cost of the component. The company's controller believes that the estimate may be incorrect, because Len Corporation has excess manufacturing capacity to produce the components without incurring additional fixed factory overhead. What per-unit manufacturing cost should be used in determining whether Len Corporation should purchase the components from an outside company or manufacture them internally? The company's controller believes that the estimate may be incorrect, because Len Corporation has excess manufacturing capacity to produce the components without incurring additional fixed factory overhead. What per-unit manufacturing cost should be used in determining whether Len Corporation should purchase the components from an outside company or manufacture them internally? Based on your analysis, it is better for len corporation to

Explanation / Answer

Direct Material = $ 100

Direct Labour = $ 93

Varaible Factory Overhead = $ 41

Total Varaible Cost per Unit = $ 234

Len Corporation to use $ 234 Per unit to decide manufactur the Unit internally or buy from the supplier.

b.

Based on the analysis, it is better for Len Corporation to MAKE the component. Doing so will save the company

$ 35 per unit.

Make Buy Differetial cost to make Direct Materials 100 0 100 Direct Labour 93 0 93 Factory Overhead 41 0 41 Purchase Cost 0 269 -269 Total relevent cost 234 269 -35

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