outsourcing the production of the handheld controll module used with some of its

Question

outsourcing the production of the handheld controll module used with some of its products. The company has received a bid from Monte Legend Co. (ML.C) to produce 13,000 unts of the module per year for $26.00 each. The following information pestans to MSrs production of the controil moduies Direct matenals Direct labor $14 nable Foxed manufacturing ovethead Total cost per unt MSI has determned that t could elmnate ai variable costs if the contral modulies were produced esternaty, but none of the fixed overhead is avoidabie Al this tme, Msi has no specic use n mnd for the space that is cuireatly dedicated to the control module production Required: 1. Compute the difference in cost between making and buying the control moduke 2. Should MSe buy the modules trom MLC or continue to anake them? Make iged ty & new product tne that would generate $37000 n nnual profc Recompute the diference in cost between -a. Suppose that the MSi spsce curienty used fot the mooees c.2 be making and buying under this scenario

Explanation / Answer

1) Calculate differential cost :

Difference in cost = (338000-325000) = 13000

2 MSI should make the products

3) Making cost = 338000+37000 = 375000

Buying cost = 325000

Difference in cost = 50000

Make Buy Direct material 182000 Direct labour 78000 Variable manufacturing overhead 65000 Purchase cost 338000 Total 325000 338000

Related Questions

Navigate

• Browse (All)
• Browse O
• Subjects

---

---

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