Question

Bramble Company must decide whether to make or buy some of its components. The costs of producing 69,800 switches for its generators are as follows. Direct materials $29,700 Variable overhead $45,400 Direct labor $51,806 Fixed overhead $80,400 Instead of making the switches at an average cost of $2.97 ($207,306 ÷ 69,800), 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.

Answer 1

Answer:

It is more convenient to continue production in house.

Explanation:

Giving the following information:

The costs of producing 69,800 switches for its generators are as follows. Direct materials $29,700 Variable overhead $45,400 Direct labor $51,806 Fixed overhead $80,400 Instead of making the switches at an average cost of $2.97 ($207,306 ÷ 69,800), the company has an opportunity to buy the switches at $2.74 per unit.

one-fourth of the fixed costs will be eliminated.

Unitary variable cost= (29,700 + 45,400 + 51,806)/69,800= $1.82

Make in house= 1.82*69,800 + (80,400*0.25)= $147,136

Buy= 2.74*69,800= $191,252

It is more convenient to continue production in house.