MC Bike Shop currently manufactures part A-14, one of the component parts used t
ID: 2536524 • Letter: M
Question
MC Bike Shop currently manufactures part A-14, one of the component parts used to assemble the company’s main product. Specialty Parts has offered to make part A-14 for $12.50 per unit.MC Bike Shop per-unit cost to make part A-14 is $14.75, as follows:
Direct materials $5.00
Direct labor 6.00
Variable factory overhead 1.75
Fixed factory overhead 2.00
None of MC Bike Shop’s fixed overhead costs will be eliminated if the part is purchased. However, the plant space currently used to manufacture the part can be leased to another company for $30,000 per year. Assuming that MC Bike Shop needs 100,000 parts per year, should the company continue to make part A-14 or buy it? MC Bike Shop currently manufactures part A-14, one of the component parts used to assemble the company’s main product. Specialty Parts has offered to make part A-14 for $12.50 per unit.
MC Bike Shop per-unit cost to make part A-14 is $14.75, as follows:
Direct materials $5.00
Direct labor 6.00
Variable factory overhead 1.75
Fixed factory overhead 2.00
None of MC Bike Shop’s fixed overhead costs will be eliminated if the part is purchased. However, the plant space currently used to manufacture the part can be leased to another company for $30,000 per year. Assuming that MC Bike Shop needs 100,000 parts per year, should the company continue to make part A-14 or buy it? MC Bike Shop currently manufactures part A-14, one of the component parts used to assemble the company’s main product. Specialty Parts has offered to make part A-14 for $12.50 per unit.
MC Bike Shop per-unit cost to make part A-14 is $14.75, as follows:
Direct materials $5.00
Direct labor 6.00
Variable factory overhead 1.75
Fixed factory overhead 2.00
None of MC Bike Shop’s fixed overhead costs will be eliminated if the part is purchased. However, the plant space currently used to manufacture the part can be leased to another company for $30,000 per year. Assuming that MC Bike Shop needs 100,000 parts per year, should the company continue to make part A-14 or buy it?
Explanation / Answer
Differential analysis :
Company should buy the part A-14.
Make Buy Direct material 500000 Direct labour 600000 Variable overhead 175000 Opportunity cost 30000 Purchase cost 1250000 Total relevant cost 1305000 1250000Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.