Fields Company Currently Manufactures One of Its Parts at a Cost

question 47

Essay

Fields Company currently manufactures one of its parts at a cost of $3.25 per unit. This cost is based on a normal production rate of 50,000 units. Variable costs are $2.10 per unit, fixed costs related to making this part are $40,000 per year, and allocated fixed costs are $45,000 per year. Allocated fixed costs are unavoidable whether the company makes or buys the part. Fields is considering buying the part from a supplier for a quoted price of $2.80 per unit guaranteed for a three-year period. Should the company continue to manufacture the part, or should it buy the part from the outside supplier? Support your answer with analyses.

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Definitions:

Diffusion of Innovation

A theory that seeks to explain how, why, and at what rate new ideas and technology spread through cultures.

Product Adoption

The process by which consumers start to use a new product or service, influencing its market penetration and success.

Fashion Product

An item associated with the fashion industry, including clothing, accessories, and footwear, that is designed to meet current trends and consumer demand.

Product Life Cycle

The stages a product goes through from development and introduction to the market, through growth and maturity, and eventually into decline.