Question: Zip Inc, manufactures electric generators. Zip is considering whether to continue to make the motor it uses in its generators or to buy motors from
Zip Inc, manufactures electric generators. Zip is considering whether to continue to make the motor it uses in its generators or to buy motors from an outside supplier. At the budgeted level of annual production, Zip's per-unit costs of manufacturing the motors in-house is as follows: Direct materials $95 Direct labor $65 Variable manufacturing overhead $23 Fixed manufacturing overhead $50 Zip will avoid 30% of its fixed manufacturing overhead costs if it buys the motors from an outside supplier. In addition, machine time is a constrained resource and the motors produced in-house require 4 hours of machine time per unit. If Zip buys the motors, this machine time would be treed up to produce more units of another product that requires 8 hours of machine time per unit and has a contribution margin of $90 per unit. At what per-unit purchase price is Zip neither better off nor worse off if it buys the motors from an outside supplier rather than makes the motors in-house! $273 $228 O $198 $243 None of the above
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