NHS needs 2,000 motors in its production of autos. It can buy the motors from KLM Motors
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Question:
NHS needs 2,000 motors in its production of autos. It can buy the motors from KLM Motors for $2,500 each. NHS’s plant can produce the motors for the following costs per unit:
Direct materials $1000
Direct manufacturing labor 500
Variable manufacturing overhead 400
Fixed manufacturing overhead 700
Total $2,600
If Southwestern buys the motors from KLM, 70% of the fixed production overhead applied will not be avoided.
Required: A. Should the company make or buy the motors?
B. What other factors should NHS consider in determining whether to make or to buy?
Related Book For
Cost Accounting A Managerial Emphasis
ISBN: 978-0133392883
6th Canadian edition
Authors: Horngren, Srikant Datar, George Foster, Madhav Rajan, Christ
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