Answer:
Instructions are listed below-
Explanation:
Giving the following information:
The costs of producing 60,200 switches for its generators are as follows:
Direct materials $29,500 (29,500/60,200= 0.49)
Variable overhead $45,600 (45600/60200=0.76)
Direct labor $25,900 (25900/60200= 0.43)
Fixed overhead $79,600 (79,600*0.25= 19,900)
Instead of making the switches at an average cost of $3.00 ($180,600 ÷ 60,200), the company has an opportunity to buy the switches at $2.74 per unit. If the company purchases the switches, all the variable costs and one-fourth of the fixed costs will be eliminated.
Make in house= (0.49 + 0.76 + 0.43)*60,200 + 19,900= $121,036
We only have into account 25% of fixed costs that are avoidable.
Outsource= 2.74*60,200= $164,948
It is cheaper to make in the house.
