Reference no: EM133058222

Question - Water Company manufactures one of the parts that enter into the manufacture of its final products, and its needs of this part amount to 7,500 units annually. The Accounts Department has determined the cost of manufacturing this part as follows:

Total expected costs to produce 7500 units Expected cost per unit

Direct material 4500 3

Direct wages 7500 0.5

Variable additional costs 22500 1.5

Material handling and machinery setup costs 15000 1

Fixed additional costs 30000 3

Note that there is an offer from an external supplier offering to supply this part to the company at a price of 10 dinars per unit.

Required - Analyze the previous data to answer the following questions:

1- Does the administration recommend manufacturing this part internally or buying it from abroad? Why?

2- What are the important factors when making a decision to purchase from abroad? Explain.