Busby Company Needs 10,000 Units of a Certain Part to Use

question 50

Essay

Busby Company needs 10,000 units of a certain part to use in its production cycle.The following information is available:
Costs incurred by Busby to make the part:
Direct materials $15
Direct labor 12
Variable factory overhead 13
Fixed factory overhead 10
Total $50
Costs to buy the part from Thurco: $45
If Busby buys the part from Thurco instead of making it,Busby could not use the released facilities in another manufacturing activity.However,twenty percent of the fixed overhead would be avoided because one of the supervisors could be let go.
(a)In deciding whether to make or buy the part,what are the relevant costs that Busby must consider.
(b)What decision should Busby make?

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Definitions:

Flexible Exchange Rates

A currency system where the value of a country's currency is allowed to fluctuate according to the foreign exchange market's demand and supply forces.

Japanese Yen

The official currency of Japan, widely used in international finance and trading.

U.S. Dollar

The recognized monetary unit of the United States, extensively employed as a standard in global commerce and financial activities.

British Enterprise

Entities engaged in commercial, industrial, or professional activities within the United Kingdom.