Reference no: EM132633132

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?

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