ColorPro uses Part 87A in the production of color printers. Unit manufacturing costs for Part 87A are as follows:

Direct materials $8 

Direct labor 2 

Variable overhead 1 

Fixed overhead 4

ColorPro uses 100,000 units of 87A per year. Filbert Company has offered to sell ColorPro 100,000 units of 87A per year for $12. Fixed overhead is unavoidable.

Now suppose that ColorPro discovers that other costs will increase by $7,000 per year if the component is purchased rather than made internally. Should ColorPro make or buy the part?

Answer rating: 100% (QA)

To determine whether ColorPro should make or buy Part 87A we need to compare the costs of making the ... View the full answer