Kleindale Company currently manufactures a subassembly for its main product. The costs per unit are as follows:
Direct materials $ 1.50
Direct labour 15.00
Variable overhead 8.00
Average fixed overhead 32.00
Total $56.50
Merriman Corp has contacted Kleindale with an offer to outsource 5,000 subassemblies for $40.00 each. Kleindale would eliminate $100,000 of fixed overhead if it accepts the proposal.
a)Should Kleindale make or buy the subassemblies? Provide calculations to support your answer.
b)At what volume of subassembly production would Kleindale generally be indifferent to making or buying the subassembly?
c)List two qualitative factors that might influence this make or buy decision.

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The Answer of Kleindale Company currently manufactures a subassembly for its main product. The costs per unit are as follows:
Direct materials $ 1.50
Direct labour 15.00
Variable overhead 8.00
Average fixed overhead 32.00
Total $56.50
Merriman Corp has contacted Kleindale with an offer to outsource 5,000 subassemblies for $40.00 each. Kleindale would eliminate $100,000 of fixed overhead if it accepts the proposal.
a)Should Kleindale make or buy the subassemblies? Provide calculations to support your answer.
b)At what volume of subassembly production would Kleindale generally be indifferent to making or buying the subassembly?
c)List two qualitative factors that might influence this make or buy decision.

Kleindale Company Currently Manufactures a Subassembly for Its Main Product