Answer:
Net savings from buying $ 8,000
Decision : The company should assemble
Explanation:
Unit variable cost of making = 25+ 53+ 16+ 47 = $94
$
Total variable cost ( $94 × 2,000) = 188,000
Total cost of external purchase ($110× 2000) <u>220,000
</u>
Extra variable cost from external purchase (32,000
)
add Savings in fixed overheads <u> 40,000</u>
Net savings from buying <u> 8,000</u>
<em>Note that the fixed cost were not included because they not relevant for the decision. They would be incurred either way.</em>
Decision.
<em>Since the management wishes tom save at least $10,000 per year but the analysis above shows that the company can only save $8,000, then Mobility should not buy the product but rather assemble them</em>
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