Each year madsen company purchases 8000 units of a part

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Each year, Madsen Company purchases 8,000 units of a part that it needs for production of its product. The supplier notified Madsen Company that a price increase will take effect shortly, which will bring the price of the part to $25 per part. Madsen Company is considering the use of idle facilities to produce the part. The annual production costs to produce the needed 8,000 parts are as follows:

Direct materials $17,500

Direct labor 30,000

Variable indirect production costs 14,000

Fixed indirect production costs 33,500

The idle facilities could also be rented out at an annual rent of $99,000. All the fixed indirect production costs are avoidable.

Determine if Madsen Company should buy the part or produce it internally.

Reference no: EM13567848

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