Reference no: EM132571525

Question i) Describe the circumstances of the following case study below, of the Vacuum manufacturer, and recommend a course of action.

Question ii) Explain your approach to the problem,

Question iii) Perform relevant calculations and analysis, and formulate a recommendation.

A vacuum manufacturer has prepared the following cost data for manufacturing one of its engine components based on the annual production of 50,000 units.

Description cost per month

Direct materials $75,000

Direct Labor $100,000

Total $175,000

• In addition, variable factory overhead is applied at $7.50 per unit.
• Fixed factory overhead is applied at 150% of direct labor cost per unit.
• The vacuums sell for $150 each.

A third party has offered to make the engines for $60 per unit. 75% of fixed factory overhead, which represents executive salaries, rent, depreciation, and taxes, continue regardless of the decision.

Question iv) Should the company make or buy the engines?

Question v) Which financial information is relevant and not relevant.

Question vi) What other factors that should be considered when making this decision and elaborate on whether or not those factors do or do not support the decision.