The company has an offer from duvall valves to produce the

Reference no: EM13589495

Howell Corporation produces an executive jet for which it currently manufactures a fuel valve; the cost of the valve is indicated below:

		Cost per Unit
Variable costs
Direct material		$950
Direct labor		660
Variable overhead		320
Total variable costs		$1,930
Fixed costs
Depreciation of equipment		490
Depreciation of building		210
Supervisory salaries		310
Total fixed costs		1,010
Total cost		$2,940

The company has an offer from Duvall Valves to produce the part for $2,070 per unit and supply 1,020 valves (the number needed in the coming year). If the company accepts this offer and shuts down production of valves, production workers and supervisors will be reassigned to other areas. The equipment cannot be used elsewhere in the company, and it has no market value. However, the space occupied by the production of the valve can be used by another production group that is currently leasing space for $55,100 per year.

Should the company make or buy the valve?

Incremental cost of buying valves is . The company should make the valves.

Reference no: EM13589495

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