Question

Benitez Company currently outsources a relay switch that is a component in one of its products. The switches cost $26 each. The company is considering making the switches internally at the following projected annual production costs: Unit-level material cost $ 6 Unit-level labor cost $ 5 Unit-level overhead $ 4 Batch-level set-up cost (8,000 units per batch) $ 34,000 Product-level supervisory salaries $ 42,000 Allocated facility-level costs $ 29,000 The company expects an annual need for 8,000 switches. If the company makes the product, it will have to utilize factory space currently being leased to another company for $2,400 a month. If the company decides to make the parts, total costs will be______________.

Answer 1

Answer:

Total cost is  253,800 $ and cost per unit is 31.725 $.

Explanation:

Material (8000 X 6)                                                    48000

Labor     (8000 X 5)                                                    40000

Factory OH ( 8000 X 4)                                              32000

Salaries                                                                         42000

Set up cost                                                                   34000

Facility level cost                                                         29000

Total Manufacturing Cost                                           225000

Opportunity Cost ( 2400 X 12)                                     28800

Total Relevant Cost                                                      $253,800

Cost / Unit (253800/8000)                                     $  31.725/ unit.