The Cueva Sada, SA factory produces several lines of items that include certain parts, which can be manufactured in the plant or externally. The cost of manufacturing one of the pieces, called fastener A, is as follows: Variable costs C$70, Fixed costs C$20 Total cost C$90

The number of pieces manufactured annually according to the installed capacity reaches 50,000 units. A workshop in the city offers to manufacture the parts at a cost of C$80 each, plus a cost of C$50,000 for freight. The decision to have manufacturing externally would generate some idle capacity that could be used to produce parts that would generate net savings of C$400,000, this is an opportunity cost. The normal installed capacity to produce this line is 50,000 units.

Complementary data , the cost analysis must be done on the basis of direct costing, the opportunity cost must be considered as an expense because it is what the company stops receiving for producing the parts itself.

Required

The company should or should not produce the part or have it produced by the workshop that makes the offer. Give reasons for your answer.  

 

Answer rating: 100% (QA)

Based on the given information the company should produce the part internally ... View the full answer