Should the company make or buy the engines and explain why

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Reference no: EM132769720

A vacuum manufacturer has prepared the following cost data for manufacturing one of its engine components based on the annual production of 50,000 units.

Description
Cost per Month

Direct Materials $75,000
Direct Labor $100,000
Total $175,000

In addition, variable factory overhead is applied at $7.50 per unit. Fixed factory overhead is applied at 150% of direct labor cost per unit. The vacuums sell for $150 each. A third party has offered to make the engines for $60 per unit. 75% of fixed factory overhead, which represents executive salaries, rent, depreciation, and taxes, continue regardless of the decision.

Problem 1: Should the company make or buy the engines? Ensure all per unit amounts are provided. Propose other factors that should be considered when making this decision and elaborate on whether or not those factors do or do not support the decision.

Reference no: EM132769720

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