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Question - Make or Buy - CedarWood Industries must decide whether to make or buy tree clamps. The costs of producing 60,000 clamps are as follows:
Direct materials - $65,000
Direct labour - $42,000
Variable overhead - $45,000
Fixed overhead - $60,000
The average cost to make 1 clamp is $2.95 and the company has been offered a price per clamp of $2.75 to buy them.
If they buy the clamps, all variable costs will be eliminated and 50% of the fixed costs will be eliminated.
Should CedarWood continue to make or should they buy the clamps? Show all your work and clearly state MAKE or BUY in your answer.
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