Song a division of carolina enterprises currently makes, Ask an Expert

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Song, a division of Carolina Enterprises, currently makes 100,000 units of a part that could be purchased from an outsider for $7 a unit. Song's costs follow:

Variable Manufacturing costs	$500,000
Fixed manufacturing costs	$200,000
Allocated Corporate Administrative costs	$60,000

If Song were to discontinue production, fixed manufacturing costs would be reduced by 60%. From only a financial point of view, should the company make or buy the units? Explain what the impact on net income would be and what are the relevant costs of deciding whether the division should purchase the product from an outside supplier or not?

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M9961189

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