Reference no: EM132540308

Pewterschmidt manufactures part 4A that is currently used in one of its products.

The unit cost to make this part is:

Direct Materials $ 10
Direct Labor $ 5
Variable overhead $ 1
Depreciation of special equipment $ 3
Supervisor`s salary $ 3
General factory overhead $ 10
Total cost per unit $ 32

1. The special equipment used to manufacture part 4A has no resale value.
2. General factory overhead is allocated on the basis of direct labor hours.
3. The £ 32 total unit cost is based on 20,000 parts produced each year.
4. An outside supplier has offered to provide the 20,000 parts at a cost of £ 25 per part.

Question 1: Should we make or buy the parts? what is the difference between alternatives?

Option a. $ 500,000, we should buy!

Option b. $ 380,000, we should make!

Option c. $ 760,000, we should buy!

Option D. $ 120,000, we should make!