Reference no: EM132523831

Hightech Company manufactured 6,000 units of a component part that is used in its product and incurred the following costs: Direct materials $ 70,000 Direct labor 30,000 Variable manufacturing overhead 20,000 Fixed manufacturing overhead 40,000 . Total of $160,000 Another company has offered to sell the same component part to the company for $24 per unit. The fixed manufacturing overhead consists mainly of depreciation on the equipment used to manufacture the part and would not be reduced if the component part was purchased from the outside firm. If the component part is purchased from the outside firm, Hightech Company has the opportunity to use the factory equipment to produce another product which is estimated to have a contribution margin of $30,000.

Instructions

Question 1: Write a full incremental columnar analysis report for Hightech Company which can assist this make-or-buy decision.

Question 2: Would you recommend that Hightech buy in the component from outside or continue to make it, and explain why?