MSI is considering outsourcing the production of the portable control module used with some of its products. The company has received an offer from Monte Legend Co. (MLC) to produce 11,000 units of the module per year at $17.00 each. The following information is for MSI's production of control modules: Direct materials $8 Direct labor 4 Variable manufacturing cost 4 Fixed manufacturing cost 8 Total cost per unit $24 MSI has determined that it could eliminate all variable costs if control modules are produced externally, but none of the fixed overhead is avoidable. At this time, MSI does not have a specific use in mind for the space that is currently dedicated to the production of control modules.

Required:

1. Calculate the cost difference between manufacturing and purchasing the control module.

2. Should MSI buy MLC modules or continue to manufacture them? Make Buy 

3-a. Assume that the MSI space currently used for modules could be used by a new product line that would generate $41,000 in annual revenue. Recalculate the cost difference between make and buy in this scenario.

3-b. Does this change your recommendation to MSI?

Answer rating: 100% (QA)

1 Cost difference between manufacturing and purchasing the control module Total cost per unit for MS... View the full answer