Santos co currently manufactures on of its crucial parts at

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Santos co. currently manufactures on of its crucial parts at a cost of $3.40 PU. This cost is based on a normal production rate of 50,000 units per year. Variable costs are $1.50 per unit, fixed costs related to making this part are $50,000 per year and allocated fixed costs are $45,000 per year. Allocated fixed costs are unaboidable whether the company makes or buys the part. Santos is considering buying the part from a supplier for a quoted price of $2.70 per unit guaranteed for a three-year period. Should the company continue to manufacture the part, or should it buy the part from the outside supplier?

Reference no: EM13605338

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