Sanders Company needs 10,000 units of a certain part to use in its production cycle. If Sanders buys the part from Rodman Company instead of making it, Sanders cannot use the excess capacity for another manufacturing activity. Forty percent of the overhead will continue regardless of what decision is made.
Cost to Sanders to make the part (per unit) Cost to buy the part from Rodman - $65 (per unit) Required:
(1) In deciding whether to make or buy the part, what are Sanders' total relevant costs to make the part?
__________
(2) What decision should Sanders make, and what is the total cost advantage that would result?
__________
(3) What is the total dollar value of costs that are not relevant to this decision? _____

Question

Sanders Company needs 10,000 units of a certain part to use in its production cycle. If Sanders buys the part from Rodman Company instead of making it, Sanders cannot use the excess capacity for another manufacturing activity. Forty percent of the overhead will continue regardless of what decision is made.
Cost to Sanders to make the part (per unit) Cost to buy the part from Rodman - $65 (per unit) Required:
  (1) In deciding whether to make or buy the part, what are Sanders' total relevant costs to make the part?
__________
(2) What decision should Sanders make, and what is the total cost advantage that would result?
__________
(3) What is the total dollar value of costs that are not relevant to this decision? _____

Quizplus · Accepted Answer

The Answer of Sanders Company needs 10,000 units of a certain part to use in its production cycle. If Sanders buys the part from Rodman Company instead of making it, Sanders cannot use the excess capacity for another manufacturing activity. Forty percent of the overhead will continue regardless of what decision is made.
Cost to Sanders to make the part (per unit) Cost to buy the part from Rodman - $65 (per unit) Required:
  (1) In deciding whether to make or buy the part, what are Sanders' total relevant costs to make the part?
__________
(2) What decision should Sanders make, and what is the total cost advantage that would result?
__________
(3) What is the total dollar value of costs that are not relevant to this decision? _____

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