Sycamore Company uses a certain part in its manufacturing process that it buys f

Question

Sycamore Company uses a certain part in its manufacturing process that it buys from an outside supplier for $29 per part plus another $4 for shipping and other purchasing-related costs. The company will need 14,400 of these parts in the next year and is considering making the part internally. After performing a capacity analysis, Sycamore determined that it has sufficient unused capacity to manufacture the 14,400 parts but would need to hire a manager at an annual salary of $43,200 to oversee this production activity. Estimated production costs are determined to be:

37

E16-10 Part a

E16-10 Part b

Should Sycamore produce the part or continue to buy it from the outside supplier?

E16-10 Part c

What are the other factors that Sycamore Company should consider in deciding to make the part internally? (Select all that apply.)

The potential for improved control over the availability of the parts by having it when needed and the potential for improved quality of the parts.

Since Sycamore Company is considering the use of currently available capacity, it should evaluate any relevant opportunity costs of using this capacity for more profitable activities.

Direct material $ 18 Direct labor 8 Variable overhead 4 Fixed overhead (includes manager at $3 per unit) 7 Total unit cost $

37

Explanation / Answer

Historical cost                Relevant
Direct labor                   Relevant
Direct material               Relevant
Variable overhead         Relevant
Fixed overhead             Irrelevant
New manager's salary   Relevant

b) Should Sycamore produce the part or continue to buy it from the outside supplier?

                              Make            Buy
Purchasing cost          0                $33
Direct materials       $18                0
Direct labor              $8                0
Variable OH            $4                0
Fixed OH
Manager's salary      $3
                             $33               $33
Sycamore is indifferent about the decision.

c) What are the other factors that Sycamore Company should consider in deciding to make the part internally? (Select all that apply.)

The potential for improved control over the availability of the parts by having it when needed and the potential for improved quality of the parts.

Since Sycamore Company is considering the use of currently available capacity, it should evaluate any relevant opportunity costs of using this capacity for more profitable activities.

Related Questions

Navigate

• Browse (All)
• Browse S
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.