Busby Company Needs 10,000 Units of a Certain Part to Use

question 16

Essay

Busby Company needs 10,000 units of a certain part to use in its production cycle. The following information is available: If Busby buys the part from Thurco instead of making it, Busby could not use the released facilities in another manufacturing activity. However, twenty percent of the fixed overhead would be avoided because one of the supervisors could be let go.
(a) In deciding whether to make or buy the part, what are the relevant costs that Busby must consider.
(b) What decision should Busby make?

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Definitions:

Modernization Theory

A theory suggesting that traditional societies will develop economically and socially to become more 'modern', following the patterns of Western societies.

Technological Change

The process by which new technologies are developed and introduced into society, influencing various aspects of life.

Dependency Theory

A theory suggesting that the economic conditions of wealthier nations are directly linked to the poverty of less developed nations, due to an unequal global system that benefits rich countries at the expense of poorer ones.

Economic Success

The achievement of financial goals and stability, often measured by factors such as income, wealth accumulation, and employment status.