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Question - The following production costs are provided for Glenislay Co., a manufacturer of high quality headphones. Manufacturing Costs are as follows: Direct Materials $40, Direct Labor $25, Variable Overhead $15, Fixed Overhead $30 for a Total of $110. It has been determined that the headphones could be purchased from Integrated Labs at a cost of $90 plus $5 shipping costs. Considering the offer from Integrated Labs, show whether Glenislay should make or buy the product.

(a) Assume 40% of fixed overhead allocated to making headphones relates to a production manager who would not be retained if the headphones were not produced by Glenislay.

(b) How much better off (per unit) would Glenislay be if they follow your suggestion in a. relative to the other option?

(c) How would your analysis change if Glenislay could use capacity resources for alternative activities that would produce a contribution of $27 per unit (make or buy PDA)?

Reference no: EM132534273

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