Wildcat Company currently buys supplier informed Wildcat Company that a 20 perce

Question

Wildcat Company currently buys supplier informed Wildcat Company that a 20 percent increase will take effect next year 50,000 units of a part used to manufacture its product at $100 per unit. Recently the . Wildcat has some additional 6. space and could produce the units for the following per-unit costs (based on 50,000 units): $36 34 30 26 $126 Direct materials Direct labor Variable overhead Fixed overhead Total e units are purchased from the supplier, Wildcat would continue to incur $250,000 of fixed costs. Required a. Should Wildcat Company buy the parts externally or make them internally? Prepare differential analysis to b. Should Wildcat Company buy the parts ex support your decision ternally or make them internally, assuming that they can rent the plant tion when the parts are purchased externally? Prepare differential analysis for $325,000 per year to XYZ Corpora to support your decision

Explanation / Answer

a) Differential analysis :

Wildcat company should buy the parts externally because buying cost is less than making cost.

b) Differential analysis :

Wildcat company should buy the parts externally because buying cost is less than making cost.

Make Buy Direct material (50000*36) 1800000 Direct labour (50000*34) 1700000 Variable manufacturing overhead (50000*30) 1500000 Fixed manufacturing overhead (50000*26-250000) 1050000 Purchase cost (100*1.2*50000) 6000000 Total 6050000 6000000

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