What is the correct make-or-buy decision

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Question

Sunland's Manufacturing Company can make 100 units of a necessary component part with the following costs:

Direct Materials     $126000

Direct Labor          31000

Variable Overhead  42000

Fixed Overhead     30000

If Sunland's Manufacturing Company can purchase the component externally for $200000 and only $2000 of the fixed costs can be avoided, what is the correct make-or-buy decision?

Coronado Industries is considering the replacement of a piece of equipment with a newer model. The following data has been collected:

                                      Old Equipment        New Equipment

Purchase price                      $305000            $496000

Accumulated depreciation       122000               - 0 -

Annual operating costs          400000               313000

If the old equipment is replaced now, it can be sold for $82300. Both the old equipment's remaining useful life and the new equipment's useful life is 5 years.

Which of the following amounts is irrelevant to the replacement decision?

Reference no: EM132317392

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