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Tony's Electronic Corporation requires 12,000 units of the certain part to be utilized in production of its karaoke machines. If Tony's Electronics purchases part from Scott Company instead of making it themselves, Tony's could not utilize the current facilities for another manufacturing activity. Sixty percent of fixed overhead applied will carry on regardless of what decision is a made. The quantitative information given below is available regarding situation presented:

Cost to make the part:
Direct materials $5
Direct labor 25
Variable overhead 12
Fixed overhead applied 15
$57
Cost to buy the part: $45

Required

A. In deciding whether to make or purchase part, compute Tony's total relevant costs to make the part?

B. Which alternative (make or buy) is more desirable for Tony's and by what amount?

C. Assume that Tony's Electronics Corporation is in the area of country with high unemployment and that it is not likely which displaced employees will discover other employment. How might that impact your decision?

Business Management, Management Studies

  • Category:- Business Management
  • Reference No.:- M931150

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