Andrea Company manufactures a part for its production cycle.The annual costs per unit for 20,000 units of this part are as follows:
$\begin{array} { l }
\text {Direct materials }&\$15 \
\text { Direct labor}&12 \
\text {Variable indirect production costs }&19 \
\text {Fixed indirect production costs }&16 \
\text {Total cost }&\$62 \
\end{array}$

Andrea Company has been approached by a supplier who will sell 20,000 units of the same part for $940,000.All the fixed indirect production costs are unavoidable if Andrea Company ceases production of the part.
Required:
A) Assuming there is no alternative use for the facilities, should Andrea Company buy or make the part?
B) Assume the facilities can be rented out for $100,000 per year. Should Andrea Company buy the part? If so, how much money will be saved?

Question

Andrea Company manufactures a part for its production cycle.The annual costs per unit for 20,000 units of this part are as follows:
 $\begin{array} { l  }
 \text {Direct materials }&\$15 \
 \text { Direct labor}&12 \
 \text {Variable indirect production costs }&19 \
 \text {Fixed indirect production costs }&16 \
 \text {Total cost }&\$62 \
\end{array}$
 
Andrea Company has been approached by a supplier who will sell 20,000 units of the same part for $940,000.All the fixed indirect production costs are unavoidable if Andrea Company ceases production of the part.
Required: 
A) Assuming there is no alternative use for the facilities, should Andrea Company buy or make the part?
B) Assume the facilities can be rented out for $100,000 per year. Should Andrea Company buy the part? If so, how much money will be saved?

Quizplus · Accepted Answer

The Answer of Andrea Company manufactures a part for its production cycle.The annual costs per unit for 20,000 units of this part are as follows:
 $\begin{array} { l  }
 \text {Direct materials }&\$15 \
 \text { Direct labor}&12 \
 \text {Variable indirect production costs }&19 \
 \text {Fixed indirect production costs }&16 \
 \text {Total cost }&\$62 \
\end{array}$
 
Andrea Company has been approached by a supplier who will sell 20,000 units of the same part for $940,000.All the fixed indirect production costs are unavoidable if Andrea Company ceases production of the part.
Required: 
A) Assuming there is no alternative use for the facilities, should Andrea Company buy or make the part?
B) Assume the facilities can be rented out for $100,000 per year. Should Andrea Company buy the part? If so, how much money will be saved?

Andrea Company Manufactures a Part for Its Production Cycle Andrea Company Has Been Approached by a Supplier Who Will