Zaman Co. is now producing Product X. The company’s accounting department reports the following costs of producing 50,000 units of the product X each year:

Direct Materials $2

Direct Labor $1

Variable Overhead $1

Fixed cost $ 1.75* (Expected 50% will save if the company will buy from the outside supplier)

An outside supplier from China offered to sell 50,000 units to Zaman Co. at a price of only $5 each.

Instructions:

Should the company stop producing the product X internally or buy them from the outside supplier? (show your calculation)

Answer rating: 100% (QA)

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