Junior Company currently buys 30,000 units of a part used to manufacture its product at $40 per unit.Recently the supplier informed Junior Company that a 20 percent increase will take effect next year.Junior has some additional space and could produce the units for the following per-unit costs (based on 30,000 units):
$$\begin{array} { l r }
\text { Direct materials } & \$ 16 \
\text { Direct labour } & 12 \
\text { Variable overhead } & 12 \
\text { Fixed overhead } & 10 \
\text { Total } & \$ 50
\end{array}$$
If the units are purchased from the supplier,$200,000 of fixed costs will continue to be incurred.In addition,the plant can be rented out for $20,000 per year if the parts are purchased externally.
Should Junior Company buy the part externally or make it internally?

Question

Junior Company currently buys 30,000 units of a part used to manufacture its product at $40 per unit.Recently the supplier informed Junior Company that a 20 percent increase will take effect next year.Junior has some additional space and could produce the units for the following per-unit costs (based on 30,000 units):
$$\begin{array} { l r } 
\text { Direct materials } & \$ 16 \
\text { Direct labour } & 12 \
\text { Variable overhead } & 12 \
\text { Fixed overhead } & 10 \
\text { Total } & \$ 50
\end{array}$$ 
If the units are purchased from the supplier,$200,000 of fixed costs will continue to be incurred.In addition,the plant can be rented out for $20,000 per year if the parts are purchased externally.
Should Junior Company buy the part externally or make it internally?

Quizplus · Accepted Answer

The Answer of Junior Company currently buys 30,000 units of a part used to manufacture its product at $40 per unit.Recently the supplier informed Junior Company that a 20 percent increase will take effect next year.Junior has some additional space and could produce the units for the following per-unit costs (based on 30,000 units):
$$\begin{array} { l r } 
\text { Direct materials } & \$ 16 \
\text { Direct labour } & 12 \
\text { Variable overhead } & 12 \
\text { Fixed overhead } & 10 \
\text { Total } & \$ 50
\end{array}$$ 
If the units are purchased from the supplier,$200,000 of fixed costs will continue to be incurred.In addition,the plant can be rented out for $20,000 per year if the parts are purchased externally.
Should Junior Company buy the part externally or make it internally?

Junior Company Currently Buys 30,000 Units of a Part Used