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Habib Company makes 40,000 units per year of a part that it uses in the products it manufactures. The unit product cost of this part is as follows:
Direct Materials $11.30
Direct Labour $22.70
Variable Manufacturing Overhead $ 1.20
Fixed Manufacturing Overhead $24.70
Unit Product Cost $59.90
Required:
Problem a How much of the unit product cost of $59.90 is relevant in the decision of whether to Make or Buy the part? Please show all work for any calculations performed.
Problem b What is the net Total Dollar Advantage (Disadvantage) of purchasing the part, rather than making it?
Problem c. What is the maximum amount Habib Company should be willing to pay an outside supplier per unit for the part if the supplier commits to supplying all 40,000 units required each year?
Problem d. Assume the outside supplier agrees to the new price you calculated in part 3. List three (3) other non financial things Habib Company should consider before going with the outside supplier.
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