London, Inc

question 70

Essay

London, Inc. uses 2,000 units of Part 8G3 each year in the manufacture of one of its products. The company currently produces the part internally, but an outside supplier has offered to provide the part at a price of $15 per part. If London chooses to purchase the part from the outside supplier, one half of it’s the fixed manufacturing overhead will be eliminated. London’s standard unit cost of producing the part is listed below.

Required
Ignoring qualitative factors, should London continue to make the parts internally or purchase them from the outside supplier? Why?

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Definitions:

Extrasensory

Perception or communication outside of normal sensory processes, often referred to as ESP.

Telepathy

The presumed exchange of thoughts or ideas through methods beyond the recognized senses.

Precognition

The ability or claimed ability to perceive events in the future or beyond normal sensory contact.

Clairvoyance

The supposed ability to gain information about an object, person, location, or physical event through means other than the known human senses.