Reference no: EM132637175

The estimated costs of producing 6,000 units of a component are:

Per Unit

Direct Material                                  $10

Direct Labor                                        8

Applied Variable Factory Overhead           9

Applied Fixed Factory Overhead              12

$1.5 per direct labor dollar

The same component can be purchased from market at a price of $29 per unit. If the component is purchased from market, 25% of the fixed factory overhead will be saved.

Required:

Problem a. Should the component be purchased from the market?

Problem b. Being a production manager, provide your logical opinion on choosing between purchasing the component from market or producing in-house.