Cost is based on normal production-allocated fixed costs

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Reference no: EM13911914

The company manufactures a piece Power Ring to $ 3.40 per unit. This cost is based on the normal production of 50,000 units per year. Variable costs are $ 1.50 per unit, fixed costs associated with bringing this piece is $ 50,000 per year and (Allocated fixed costs) allocated fixed costs are $ 45,000 a year. The allocated fixed costs are inevitable even if the company does or buy the piece. The Operations Manager is considering buying the piece to a supplier I quote guaranteed $ 2.70 per unit for a period of 3 years. Should the company continue by manufacturing this piece or external supplier must buy?

Showing the procedure and justify your answer with the required analysis.

Reference no: EM13911914

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