Harris Company Currently Produces a Component That It Uses in Making

question 114

Essay

Harris Company currently produces a component that it uses in making some of its products. Harris has calculated the following costs for making the part:
$$\begin{array} { | l | r | } \hline \text { Unit-level costs } & \\\hline \text { Materials } & \$ 20 \\\hline \text { Labor } & 28 \\\hline \text { Overhead } & 2 \\\hline \text { Allocated facility-level costs } & 10 \\\hline \text { Total cost } & \$ 60 \\\hline\end{array}$$ Harris is considering outsourcing the component. A supplier has offered to sell the component to Harris for $52 each. Harris needs 8,000 units each year.Required: Should Harris outsource the component? Support your answer with appropriate computations.

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Definitions:

Demand Curve

A visual diagram illustrating the connection between a product's price and the amount consumers are willing to purchase.

Motorcycle Manufacturers

Companies that design, produce, and market motorcycles and potentially other motorized two-wheeled vehicles.

Equilibrium Quantity

The quantity of goods or services that is supplied and demanded at the equilibrium price, where demand and supply are balanced.

Equilibrium Price

The price at which the quantity of a good or service demanded by consumers equals the quantity supplied by producers, resulting in a market balance.