Reference no: EM13572157

A company is planning to introduce a new portable TV to its existing product line. Management must decide whether to make the TV case or buy it from an outside supplier. The lowest outside price is $100. If the case is produced internally, the company wills have to purchase new equipment that will yield annual depreciation of $ 130,000. The company will also need to rent a new production facility at $200,000 a year. At 20,000 cases per year, a preliminary analysis of production costs shows the following (note: the new costs are included in the numbers given below)

                                                                Per case

Direct materials                                       $40

Direct labor                                             32

Variable overhead                                   10

Equipment depreciation                          6.50

Building rental                                         10

Allocated fixed overhead                       7.50

Total cost                                               $106

Required: determine whether the company should make the cases or buy them from the outside supplier.