The Hanes company needs 10,000 units of a component to be used in production. Currently Hanes makes this component, but is considering outsourcing it to the Simms Company, who has offered 10,000 units at $53 per unit.



Based current production data, the cost of producting the component per unit is $57, which consists of direct materials of $6, direct labor of $24, variable overhead of $12, and applied fixed overhead of $15.



Assume that 60% of fixed overhead is primarily related to facilities and equipment depreciation; the facilities and equipment are used for other components that Hanes produces. The other 40% of the fixed overhead is directly attributable to the component under question. Hanes has no alternative use for the space and equipment.



Which alternative is more desirable, and by what amount?

Answer rating: 100% (QA)

To determine which alternative is more desirable we need to compare the costs of producing th... View the full answer