Pandar Corporation, a high-end digital camera manufacturer, currently purchases a component part from an outside company at
Question:
Pandar Corporation, a high-end digital camera manufacturer, currently purchases a component part from an outside company at a price of $141 per unit. While the quality of the component has always been very high, Pandar Corporation’s management believes it might be possible to produce a superior component internally at a cost lower than $141. The accounting department has provided an estimate of the per-unit manufacturing cost of the component.
| Direct materials | 77 |
| Direct labor | 45 |
| Variable factory overhead | 25 |
| Fixed factory overhead | 30 |
| $177 |
The company’s controller believes that the estimate may be incorrect, because Pandar Corporation has excess manufacturing capacity to produce the components without incurring additional fixed factory overhead. What per-unit manufacturing cost should be used in determining whether Pandar Corporation should purchase the components from an outside company or manufacture them internally?
Complete the table below to compare the per-unit cost for Pandar Corporation to make the component and the per-unit cost to buy the component. If an amount is zero, enter "0".
| Alternatives | Differential Cost to Make | ||||
| Make | Buy | ||||
| Direct materials | $ | - | $ | = | $ |
| Direct labor | - | = | |||
| Factory overhead | - | = | |||
| Purchase cost | $ | - | $ | = | $ |
| Total relevant cost | $ | - | $ | = | $ |
Based on your analysis, it is better for Pandar Corporation to buy the component. Doing so will save the company $____ per unit.
Expert Answer:
