(a) Rubble Company must decide whether to make or buy some of its components. Th

Question

(a)

Rubble Company must decide whether to make or buy some of its components. The costs of producing 66,000 switches for its generators are as follows.
Direct materials $30,830 Variable overhead $45,150 Direct labor $37,140 Fixed overhead $79,600

Instead of making the switches at an average cost of $2.92 ($192,720 ÷ 66,000), the company has an opportunity to buy the switches at $2.68 per unit. If the company purchases the switches, all the variable costs and one-fourth of the fixed costs will be eliminated.

Explanation / Answer

Company should make the product instead of buying it as it is incurring an additional expense of 1217 in making the product

Particulars Make Buy Net Income Increase/(Decrease) Direct materials               30,830.00                      -                                   30,830.00 Direct Labor               37,140.00                      -                                   37,140.00 Variable Manufacturing Cost               45,150.00                      -                                   45,150.00 Fixed Manufacturing Cost               79,600.00       17,057.14                                 62,542.86 Purchase Cost                               -   1,76,880.00                            -1,76,880.00 Total Cost            1,92,720.00 1,93,937.14                                  -1,217.14

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