Reference no: EM132560987

V&B Company needs 10 000 units of a certain part to be used in production. If V&B buys the part from Sullivan Company instead of making it themselves, V&B could not use the present facilities for another manufacturing activity.

Sixty per cent of the fixed overhead applied will continue regardless of what decision is made. The following quantitative information is available regarding the situation presented:

Cost to make the part:

Direct materials                     $ 6

Direct labour                          24

Variable overhead                   12

Fixed overhead applied            15

Cost to make the part           $57

Cost to buy the part               $53

Question i. In deciding whether to make or buy the part, what are V&B's total relevant costs per unit and in total to make the part?

Question ii. Which alternative (make or buy) is more desirable for V&B Company and by what amount?

Question iii. Suppose that V&B Company is in an area of the country with high unemployment and that it is unlikely that displaced employees will find other employment. How might that impact your decision ?