Unicorn magic manufactures a part for use in its production, Ask an Expert

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Unicorn Magic manufactures a part for use in its production of stuffed toys. When 10,000 items are produced, the costs per unit are:

Direct materials $0.60
Direct manufacturing labour 3.00
Variable manufacturing overhead 1.20
Fixed manufacturing overhead 1.60
Total $6.40

Triike Company has offered to sell to Unicorn Magic 10,000 units of the part for $6.00 per unit. The plant facilities could be used to manufacture another item at a savings of $9,000 if Unicorn Magic accepts the offer. In addition, $1.00 per unit of fixed manufacturing overhead on the original item would be eliminated.

Required:Which alternative (make or buy) is best for Unicorn Magic? Why?

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M9983677

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