Robbins Co Robbins Has an Opportunity to Purchase This Part Rather Than

question 116

Essay

Robbins Co. has been producing a part for a camera they manufacture. The costs for this part are as follows:
$$\begin{array} { | l | c | } \hline \text { Fixed costs } & \$ 392,000 \\\hline \text { Total variable costs } & \$ 112,000 \\\hline \text { Units produced } & 28,000 \\\hline\end{array}$$
Robbins has an opportunity to purchase this part rather than manufacture it. To purchase the part will cost $3 a unit. If the part is purchased, fixed costs will be reduced by 20%.
Should Robbins Co. make or buy this part. Show how you arrived at your decision.

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Definitions:

Private-label Brands

Products that are manufactured or provided by one company for offer under another company's brand.

Profit Margin

A financial metric used to assess a company's financial health, calculated by dividing net income by revenue. It represents what percentage of sales has turned into profits.

Inventory Costs

Costs associated with storing, managing, and insuring inventory, including opportunity costs of holding inventory.

Brand Equity

The value and strength of a brand that decides its worth and influences consumer choice.