Andrea Company manufactures a part for its production cycle. The annual costs per unit for 20,000 units of this part are as follows:
Direct materials- 15

Direct labor- 12

Variable indirect production costs-19

Fixed indirect production costs-16

Total cost-$62
Andrea Company has been approached by a supplier who will sell 20,000 units of the same part for $940,000. All the fixed indirect production costs are unavoidable if Andrea Company ceases production of the part.
Required:

A) Assuming there is no alternative use for the facilities, should Andrea Company buy or make the part?

B) Assume the facilities can be rented out for $100,000 per year. Should Andrea Company buy the part? If so, how much money will be saved?

Answer rating: 100% (QA)

A The company should make the part because if it mak... View the full answer