Reference no: EM132857348

Question - The management of the Petersburg Corporation requests assistance its economic analyst in arriving a decision whether to continue manufacturing a certain part of an assembly or to buy it from an outside supplier who has been quoting a price of $9.00 per unit.

The company's annual requirement is 5,000 units and the cost accumulated for their special manufacture are:

Materials $ 25,500

Director Labor 28,000

Indirect Labor 6,000

Power 300

Other cost 640

If the parts are purchases outside, present machinery used to make the parts could be sold and its value be realized. This step would reduce total machinery depreciation by $2,000 and property taxes and insurance by $1,000.

If the parts were purchased from an outside supplier the following additional costs would be incurred: freight $ 5.00 per unit; indirect labor for receiving, materials handling, inspection etc., $5,000.00.

Required -

1. Make a statement comparing the costs of manufacturing the parts with the cost of purchasing from the outside supplier.

2. A brief discussion dealing with matters other than cost factors of which management should be made aware.