MSI is considering outsourcing the production of the handheld control module use

Question

MSI is considering outsourcing the production of the handheld control module used with some of its production of the control modules s 9 Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Total cost per unit $18 MSI has determined that it could eliminate all variable costs if the control modules were producede Required 1. Compute the difference in cost between making and buying the control module. 2. Should MSI buy the modules trom MLC or continue to make them? O Buy O Make 3-a. Suppose that the MSI space currently used for the modules could be utilized by a new product li ence in Cost 3-b. Does this change your recommendation to MSI? O Yes O No

Explanation / Answer

1. Difference in cost=cost of buying -cost of making=190000-180000=$10,000 loss

cost of buying= Buy price+fixed cost=(16+3)*10000=$190,000

Cost of making=18*10000=$180,000

2. Make

Continue to make as it will save $10,000

3a)

Difference in cost=cost of buying -cost of making=160000-180000=$20,000 saving

cost of buying= Buy price+fixed cost=16*10000=$160,000

Cost of making=18*10000=$180,000

3b) Yes

It should buy to save $ 20,000

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