Should Lindon Company make or buy the part

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Problem - Lindon Company uses 10,000 units of Part Y each year as a component in the assembly of one of its products. The company is presently producing Part Y internally at a total cost of $100,000 as follows.

Direct materials $20,000

Direct labor 40,000

Variable manufacturing overhead 16,000

Fixed manufacturing overhead 24,000

Total costs 100,000

An outside supplier has offered to provide Part Y at a price of $10 per unit. If Lindon stops producing the part internally, one third of the fixed manufacturing overhead would be eliminated.

Required - Should Lindon Company make or buy the part? Submit a make-or-buy analysis showing the annual advantage or disadvantage of accepting the outside supplier's offer.

Reference no: EM132454756

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