Question

Tex's Manufacturing Company can make 200 units of a necessary component part with the following costs: Direct Materials $240,000 Direct Labor 35,000 Variable Overhead 75,000 Fixed Overhead 40,000 If Tex's Manufacturing Company can purchase the component externally for $330,000 and only $15,000 of the fixed costs can be avoided, what is the correct make-or-buy decision

Answer 1

Answer:

Buy and save $35,000

Explanation:

The computation is shown below:

Particulars                                  Make                          Buy

Direct Materials                         $240,000

Direct Labor                               $35,000

Variable Overhead                     $75,000

Fixed Overhead                          $15,000

Purchase cost                                                          $330,000

Total cost                                      $365,000           $330,000

As we can see that the buying total cost is less than the total making cost so here we can buy the product as it saves the company by $35,000 ($365,000 - $330,000)