Question

Sunland Company can produce 100 units of a component part with the following costs: Direct Materials$12000 Direct Labor 3500 Variable Overhead 9000 Fixed Overhead 11000 Of Sunland Company can purchase the component part externally for $31000 and only $4000 of the fixed costs can be avoided, what is the correct make-or-buy decision?

Answer 1

Answer:

Best decision is to buy

Explanation:

Sunland Company can save if they decide to buy in the amount of $500. See computation below.

MAKE

Direct materials $12,000

Direct labor 3,500

Variable overhead 9,000

Fixed overhead 11,000

———-

Total cost $35,500

BUY

Purchased cost $31,000

Unavoidable fixed cost 4,000

—————

Total cost $35,000

$35,500 - 35,000 = $500