You make refrigerators. Currently, you manufacture compressors for your refrigerators in-house. An outside supplier has offered...

Transcribed Image Text:

You make refrigerators. Currently, you manufacture compressors for your refrigerators in-house. An outside supplier has offered to sell you equivalent compressors at a wholesale price of $105 per unit. You need 1,000 compressors per month. The internal production costs per compressor are as follows: cost per unit $40 $40 direct materials direct labor variable overhead $20 fixed overhead $30 total $130 If you outsource the production of compressors (the buy option) in the short term, how will this choice affect your costs and profit? First, compute variable costs under MAKE versus BUY: MAKE BUY unit VC total VC If you outsource (BUY), the incremental revenue, costs, and profit are: how much each amount changes if you outsource Incremental revenue Incremental VC Incremental CM Incremental FC Incremental profit Enter negative amounts with a minus sign, i.e., -1,000 not ($1,000). Should you outsource? O YES - outsourcing reduces costs by $5,000 ONO - outsourcing reduces profit by $5,000 You make refrigerators. Currently, you manufacture compressors for your refrigerators in-house. An outside supplier has offered to sell you equivalent compressors at a wholesale price of $105 per unit. You need 1,000 compressors per month. The internal production costs per compressor are as follows: cost per unit $40 $40 direct materials direct labor variable overhead $20 fixed overhead $30 total $130 If you outsource the production of compressors (the buy option) in the short term, how will this choice affect your costs and profit? First, compute variable costs under MAKE versus BUY: MAKE BUY unit VC total VC If you outsource (BUY), the incremental revenue, costs, and profit are: how much each amount changes if you outsource Incremental revenue Incremental VC Incremental CM Incremental FC Incremental profit Enter negative amounts with a minus sign, i.e., -1,000 not ($1,000). Should you outsource? O YES - outsourcing reduces costs by $5,000 ONO - outsourcing reduces profit by $5,000

Answer rating: 100% (QA)

Unit Variable Costs VC Make Direct Material 40 Direct Labor 40 Variable Overhead 20 Total Unit VC fo... View the full answer