Question

Lindon Company uses 5,000 units of Part X each year as a component in the assembly of one of its products. The company is presently producing Part X internally at a total cost of $80,000 as follows:
Direct materials..................................................... $18,000
Direct labor............................................................. 20,000
Variable manufacturing overhead.......................... 12,000
Fixed manufacturing overhead.............................. 30,000
Total costs.............................................................. 80,000

An outside supplier has offered to provide Part X at a price of $13 per unit. If Lindon stops producing the part internally, one third of the manufacturing overhead would be eliminated.

Required: 
Prepare a make-or-buy analysis showing the annual advantage or disadvantage of accepting the outside supplier's offer.



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  • CreatedAugust 26, 2013
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