Nann uses 2,000 units of the component B2 every month to manufacture one of its products....

Nann uses 2,000 units of the component B2 every month to manufacture one of its products. The unit costs incurred to manufacture the component are as follows:

Direct materials $70.00

Direct labor 45.00

Overhead 126.50

Total $241.50

Overhead costs include variable material handling costs of $6.50 , which are applied to products on the basis of direct material costs. The remainder of the overhead costs are applied on the basis of direct labor dollars and consist of 60% variable costs and 50% fixed costs. A vendor has offered to supply the IMC2 component at a price of $198.00 per unit.

Should Nann purchase the component from the outside vendor if Nann’s capacity remains idle?

Should Nann purchase the component from the outside vendor if it can use its facilities to manufacture another product? What information will Nann need to make an accurate decision?Show your calculations.

What are the qualitative factors that Nann will have to consider when making this decision?

Expert Solution

ekkarill92 answered 1 year ago

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