Senior Company Currently Buys 35,000 Units of a Part Used

question 7

Essay

Senior Company currently buys 35,000 units of a part used to manufacture its product at $40 per unit. Recently the supplier informed Senior Company that a 20 percent increase will take effect next year. Senior has some additional space and could produce the units for the following per-unit costs (based on 35,000 units): $\begin{array}{lr}\text { Direct materials } & \$ 16 \\\text { Direct labor } & 12 \\\text { Variable overhead } & 12 \\\text { Fixed overhead } & 10 \\\text { Total } & \$ 50\end{array}$
If the units are purchased from the supplier, $200,000 of fixed costs will continue to be incurred. In addition, the plant can be rented out for $20,000 per year if the parts are purchased externally.
Required:
Should Senior Company buy the part externally or make it internally?

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Definitions:

Hidden Environmental Cost

The indirect environmental impact and expenses not immediately apparent or accounted for in the pricing of goods and services.

Oil-Spill Clean Up

Oil-spill clean up involves the methods and technologies used to remove or mitigate the effects of oil spills in the environment, focusing on preserving marine and coastal ecosystems.

Product Disposal

The process of discarding, recycling, or destroying products that are no longer useful or necessary.

Environmental Management Accounting

A management approach focused on assessing, managing, and reporting environmental costs and benefits to enhance environmental sustainability and economic performance.