Make Buy A Company Has Needs 10,000 Units of a Component Used

question 5

Essay

Make Buy
A company has needs 10,000 units of a component used in producing one of its products.The latest internal accounting reports show that the per unit manufacturing cost to be $150.00.The manufacturing cost per component broken down into type of costs is as follows:Variable manufacturing costs = $110.00 and fixed manufacturing overhead = $40.The company recently received an offer from another manufacturer to produce the component for $144.00.If they buy the component on the outside 40% of the fixed overhead can be avoided.
Required:
a.If the company decides to have the component made by the outside supplier at $144.00,what is the impact on income?
b.What price would make the company indifferent between making the component internally and having the outside supplier make it?

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Definitions:

Cohort

A group of subjects who share a defining characteristic, typically studied over a period to observe changes and developments.

Attrition

The reduction in the number of participants or the workforce over time, often due to resignation or retirement.

Longitudinal Study

An observational research method that follows the same subjects over a period of time, often years, to observe changes or developments.

Theory of Mind

The ability to attribute mental states—beliefs, intents, desires, emotions, knowledge—to oneself and to others, and to understand that others have beliefs, desires, and intentions that are different from one's own.