A manufacturer has been purchasing components for $350 a unit as an input to its manufacturing process.
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Question:
A manufacturer has been purchasing components for $350 a unit as an input to its manufacturing process. The factory currently operates at 80% of capacity. The company has skilled labour and a training budget to update skills of workers. The company operates in a city where skilled labour is tough to find. The cost per unit to make these components at the factory is estimated as follows:
Direct materials $ 100 Direct labour 175 Variable factory overhead 50 Depreciation on factory equipment 25 Other fixed factory overhead 50 Total estimated cost per unit $ 400 Purchases have been 10,000 units Total budget estimate $4,000,000 |
- What type of specific analysis is the above example?
- Use quantitative analysis to assess whether the company should change from purchasing the components.
- What is an important strategic consideration in making the above decision?
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