lindon company uses 4 500 units of part x each year as a component in the assembly 632425
) Lindon Company uses 4,500 units of Part X each year as a component in the assembly of one of its products. The company is presently producing Part X internally at a total cost of $69,000 as follows:
|
Direct materials |
$16,000 |
|
Direct labor |
18,000 |
|
Variable manufacturing overhead |
10,000 |
|
Fixed manufacturing overhead |
25,000 |
|
Total costs |
$69,000 |
An outside supplier has offered to provide Part X at a price of $11 per unit. If Lindon stops producing the part internally, one third of the manufacturing overhead would be eliminated.
Required: Prepare a make-or-buy analysis showing the annual advantage or disadvantage of accepting the outside supplier’s offer.