In: Accounting
Factor Co. can produce a unit of product for the following costs: Direct material $ 7.80 Direct labor 23.80 Overhead 39.00 Total costs per unit $ 70.60 An outside supplier offers to provide Factor with all the units it needs at $45.20 per unit. If Factor buys from the supplier, the company will still incur 60% of its overhead. Factor should choose to:
Factor should choose to: Buy
Working to support answer.
Total Cost of Buying | $ 45.20 |
Total Cost of manufacturing | $ 47.20 |
Financial advantage of buying | $ 2.00 |
.
Per Unit Cost | ||
Make | Buy | |
Direct material | $ 7.80 | |
Direct labor | $ 23.80 | |
Variable Overhead (39 x 40%) | $ 15.60 | |
Outside purchase price | $ 45.20 | |
Total Cost | $ 47.20 | $ 45.20 |
Unavoidable fixed cost will not be considered.