Determine whether the company should make the cases or buy

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Reference no: EM13581617

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 produce internally, the company will 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:

Per Case

Direct materials. $40

Direct labor. 32

Variable overhead. 10

Equipment depreciation. 6.5

Building rental. 10

Allocated fixed overhead.7.5

Total cost.$106

Requird:

1 Determine whether the company should make the cases or buy them from the outside supplier.

2 What decision should be made if only 15,000 cases are needed?

3 What other factors, beside cost, should the company consider?

Reference no: EM13581617

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