Krylon Company purchases eight special tools annually from CO., Inc. The price of these tools has increased
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Materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $40,000
Direct labor, consisting entirely of hourly production
workers (varies with production volume). . . . . . . . . 80,000
Overhead and administrative costs are not affected by producing this tool. The current purchase price is $100,000 per unit, so the report recommends that Krylon continue to purchase the product from CO., Inc.
Required
Assume that Krylon could experience labor-cost improvements on the tool production consistent with an 80 percent learning curve. Should Krylon produce or purchase its annual requirement of eight tools? Explain your answer.
(CMA adapted)
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Related Book For
Fundamentals of Cost Accounting
ISBN: 978-0077398194
3rd Edition
Authors: William Lanen, Shannon Anderson, Michael Maher
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