The Management of James Industries Has Been Evaluating Whether the Company

question 86

Essay

The management of James Industries has been evaluating whether the company should continue manufacturing a component or buy it from an outside supplier.A $200 cost per component was determined as follows:
$$\begin{array} { l r } \text { Direct materials } & 15 \\\text { Direct labour } & 40 \\\text { Variable manufacturing rverhead } & 10 \\\text { Fixed manufacturing cverhead } & 35 \\\text { Total } &\$100\end{array}$$ James Industries uses 4,000 components per year.After Light,Inc.,submitted a bid of $80 per component,some members of management felt they could reduce costs by buying from outside and discontinuing production of the component.If the component is obtained from Light,Inc.,James's unused production facilities could be leased to another company for $50,000 per year.
a.Determine the maximum amount per unit James should pay an outside supplier.
b.Indicate if the company should make or buy the component and the total dollar difference in favour of that alternative.
c.Assume the company could eliminate production supervisors with salaries totalling $30,000 if the component is purchased from an outside supplier.Indicate if the company should make or buy the component and the total dollar difference in favour of that alternative.

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Definitions:

Quantity Supplied

The amount of a good or service that producers are willing and able to sell at a given price within a specified period.

Market Price

The current value at which an asset or service is being traded in the market.

Battery Packs

Collections of battery cells or batteries configured in a pack to provide power to electronic devices or systems.

Supply Curve

A visual depiction displaying the connection between a product's price and the amount of the product that suppliers are prepared to offer.