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 products. The company has received a bid from Monte Legend Co. (MLC) to produce 25,000 units of the module per year for $22.00 each. The following information pertains to MSI's production of the control modules $13 Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Total cost per unit $29 MSI has determined that it could eliminate all variable costs if the control modules were produced externally, but none of the fixed overhead is avoidable. At this time, MSI has no specific use in mind for the space that is currently dedicated to the control module production. Required 1. Compute the difference in cost between making and buying the control module Difference in Cost 2. Should MSI buy the modules from MLC or continue to make them? Make Buy 3-a. Suppose that the MSI space currently used for the modules could be utilized by a new product line that would generate $41,000 in annual profit. Recompute the cifference in cost between making and buying under this scenario. ifference in Cost 3-b. Does this change your recommendation to MSI? Yes No

Explanation / Answer

1 Total cost of making = 25000*(13+6+2)= $525000 Total cost of buying = 25000*22 = $550000 Difference in cost = $550000-$525000 = $25000 2 Make 3a Difference in cost=(550000-41000)-525000= $16000 3b Yes

Related Questions

Navigate

• Browse (All)
• Browse M
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.