Reference no: EM132883682
Question - Toronto Auto Co [TACo], has a parts division that needs 1,000 units of component CX12 per period in making car parts. It can buy the component for $1,255 each or make them under the following circumstances:
Per Unit Direct materials $ 500
Direct manufacturing labour 250
Variable manufacturing overhead 200
Fixed manufacturing overhead 350
Total $1,300
If TACo buys the components, it can save 25% of fixed manufacturing overhead.
-Show calculations to prove whether TACo should make or buy the component. Alternatively, if TACo were to manufacture the part in-house, it can use extra capacity to supply another company that uses the same component.
-What cost information should be used for pricing the extra units?
-List additional non-financial factors the company should use in deciding whether to make or buy the component.
-What are the potential dangers of outsourcing in this situation?