Jordan Company Manufactures a Part for Its Production Cycle The Jordan Company Has Been Approached by a Supplier Who

question 16

Essay

Jordan Company manufactures a part for its production cycle. The costs per unit for 20,000 units of this part are as follows: $$\begin{array} { l l } \text { Direct materials } & \$ 15 \\\text { Direct labor } & 12 \\\text { Variable factory overhead } & 20 \\\text { Unavoidable fixed factory overhead } & \underline { 18 } \\\text { Total cost } & \underline { \$ 65 }\end{array}$$ The Jordan Company has been approached by a supplier who claims it can sell Jordan Company 20,000 units of the same part for $940,000.
Required:
a. Assuming there is no alternative use for the facilities, how much money would Jordan Company save by buying the part?
b. Assuming the facilities can be rented out for $10,000 per year, should Jordan Company buy the part, and if so, how much money would be saved?
c. Are there any other factors Jordan Company should consider?

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Definitions:

Organic Management Systems

Management practices that are flexible and adaptive, often characterized by a more decentralized structure and a focus on fostering a collaborative and innovative work environment.

Open Communication

The practice of exchanging information, thoughts, and feelings freely in a transparent, honest, and clear manner within relationships or groups.

Focused Strategy

A business approach that targets a specific market niche or audience with tailored products or services.

Specific Niche

A distinct segment of the market tailored to meet the unique needs or preferences of a targeted group.