Reference no: EM132498320

Point 1: Each year, Global Company operates a plant that produces 20,000 units of a component part that Global uses in manufacturing its various products. Per unit production costs of the part are as follows: direct materials $2, direct labor $4, variable manufacturing overhead $5, and fixed manufacturing overhead $5. The fixed manufacturing overhead of $5 includes $2 of fixed costs that could be avoided if Global stops producing this part, and $3 of fixed costs that could not be avoided. An outside supplier has offered to sell Global 20,000 units of the component part at a cost of $14 per unit.

Question a. Will Global realize a cost savings if it outsources production of the component part?

Question b. Now assume that the facility used to produce the component part can be leased to another company for $50,000 per year. Considering this additional factor, should Global make or buy the component part?