AlexCo produces collapsible wagons that are popular with beachgoers, shoppers, gardeners, parents, and tailgaters. Annual sales have been 100,000 wagons per year. The retail selling price of each wagon is $67.00. To date, AlexCo has produced each of the components used in making the wagons but has been approached by DAL, Inc. with an offer to provide the axle and wheel assembly for $18.75 per assembly. AlexCos costs to produce the axle and wheel assembly are $9.00 in direct materials, $6.50 in direct labor, $3.57 in variable overhead, and $2.50 in fixed overhead. Twenty-five percent of the fixed overhead is avoidable if the assembly is produced by DAL. Should AlexCo continue to make the axle and wheel assembly or should it buy the assembly from DAL, Inc.?

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To determine whether AlexCo should continue making the axle and wheel assembly or buy it from DAL In... View the full answer