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:

Life-Cycle Income

The total income an individual expects to earn over their lifetime.

Poverty Category

A classification for individuals or families whose income falls below a certain threshold, making it difficult to meet basic living expenses.

Millionaires

Individuals whose net worth or wealth is equal to or exceeds one million units of currency.

Income Inheritance

The transference of wealth or assets from one individual to another upon the death of the former, typically through a legal process or will.