The potential for improved control over the availability of

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Reference no: EM13570754

Sycamore Company uses a certain part in its manufacturing process that it buys from an outside supplier for $37 per part plus another $4 for shipping and other purchasing-related costs. The company will need 29,300 of these parts in the next year and is considering making the part internally. After performing a capacity analysis, Sycamore determined that it has sufficient unused capacity to manufacture the 29,300 parts but would need to hire a manager at an annual salary of $87,900 to oversee this production activity. Estimated production costs are determined to be:

Direct material

Direct labor

Variable overhead

Fixed overhead (includes manager at $3 per unit)

Total unit cost

(a)	Identify the relevant costs to make this part internally. (Select all that apply.)

rev: 05-11-2011

Historical cost

Direct labor

Direct material

Variable overhead

Fixed overhead

New manager's salary

(c)	What are the other factors that Sycamore Company should consider in deciding to make the part internally? (Select all that apply.)

rev: 05-11-2011

Total sales quantity.

The potential for improved control over the availability of the parts by having it when needed and the potential for improved quality of the parts.

Since Sycamore Company is considering the use of currently available capacity, it should evaluate any relevant opportunity costs of using this capacity for more profitable activities.

Reference no: EM13570754

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