They can buy the same quality seats from an outside

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Reference no: EM13568679

Bombay makes bicycle seats that they sell for $33 to retailers. Annually they produce and sell 20,000 units. Their costs are as follows.

Direct Materials: $6
Direct Labor: $5
Variable Overhead: 3
Fixed Overhead: 4

They can buy the same quality seats from an outside supplier for $20 and save 60% of their fixed overhead. What should they do and how much will it affect operating income? At what price from their supplier would they be indifferent to make or buy? What are the qualitative factors in this decision?

Reference no: EM13568679

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