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Should junior company buy the part externally

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Reference no: EM132877437

Question - Junior Company currently buys 30,000 units of a part used to manufacture its product at $40 per unit. Recently the supplier informed Junior Company that a 20% increase will take effect next year. Junior has some additional space and could produce the units for the following per-unit costs (based on 30,000 units):

Direct materials $16

Direct labor 12

Variable overhead 12

Fixed overhead 10

Total $50

If the units are purchased from the supplier, $200,000 of fixed costs will continue to be incurred. In addition, the plant can be rented out for $20,000 per year if the parts are purchased externally.

Should Junior Company buy the part externally or make it internally?

Reference no: EM132877437

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