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Lindon Company utilizes 5,000 units of Part X each year as a component in the assembly of one of its products. The company is presently producing Part X internally at a total cost of $80,000 as shown:

Direct materials...............................................$18,000

Direct labor......................................................20,000

Variable manufacturing overhead...................     12,000

Fixed manufacturing overhead.......................     30,000

Total costs.......................................................80,000

The outside supplier has offered to give Part X at a price of $13 per unit. If Lindon stops producing the part internally, one third of the manufacturing overhead would be removed.

Required: Make a make-or-buy analysis exhibiting the annual benefit or drawback of accepting the outside supplier's offer.

Accounting Basics, Accounting

  • Category:- Accounting Basics
  • Reference No.:- M915960

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