Reference no: EM133090980
Question - Restoration Hardware Corp. manufacturers household furniture, and currently makes a kitchen table that can be customized. Kyle, the firm's production manager, asked the finance department to compile a breakdown of costs for producing the customizable table:
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Annual production costs for Customizable Kitchen Table
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Per Unit
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Direct Materials
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$8.30
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Direct Labour
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$5.00
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Variable Overhead
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$2.65
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Production Supervisor's Salary
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$13.50
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Manufacturing Equipment Depreciation
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$2.00
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Allocated Fixed Overhead
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$4.00
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Total Costs
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$35.45
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An external supplier has offered to provide Restoration Hardware 5,000 units of the same table per year at a price of $25 each.
Additional information: The manufacturing equipment has no salvage value and cannot be used for any other purpose. It also cannot be sold as there is no market for the equipment.
The fixed overhead costs allocated to the cabinets are common to all items produced in the factory.
All current fixed costs on a per unit basis are expressed for production of 5,000 units. These costs will not change if more or less units are produced.
Required - If Restoration Hardware decides to purchase the tables rather than making them, the production supervisor will take over duties in another department with a different salary based on new responsibilities. The new salary would be $50,000. Should the company make or buy the tables?