Which alternative should armidale innovations choose

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Reference no: EM131930265

Armidale Innovations manufactures cars. For 2016, the operations manager, Jack, puts an estimate that the company will need 1,290 steering wheels for its all cars. Jack is evaluating two alternatives: He can either purchase all steering wheels required for 2016 from Tamworth Manufacturing at a price of $1,301 per unit; OR, he can manufacture the required number of steering wheels in-house at the Armidale Innovations own manufacturing plant at the following per unit cost:

Direct materials $499

Direct labour (manufacturing) $249

Variable overhead (manufacturing) $199

Fixed overhead (manufacturing) $349

Total cost (per unit): $1,296

If Armidale Innovations decides to buy all steering wheels from Tamworth Manufacturing, 69% of its currently committed fixed overhead (manufacturing) will not be avoided/eliminated.

Which alternative should Armidale Innovations choose?

Reference no: EM131930265

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