Lafluer Manufacturing incurs unit costs of $7.15 ($4.51 variable and $2.64 fixed

Question

Lafluer Manufacturing incurs unit costs of $7.15 ($4.51 variable and $2.64 fixed) in making a sub-assembly part for its finished product. A supplier offers to make 17,000 of the assembly parts at $4.88 per unit. If the offer is accepted, Lafluer will save all variable costs but no fixed costs. Prepare an analysis showing the total cost saving, if any, Lafluer will realize by buying the part. (If answer is zero, please enter 0. Do not leave any fields blank. If amount decreases the income, use either a negative sign preceding the number eg -45 or parentheses eg (45).)

Make

Buy

Net Income
Increase (Decrease)

$

$

$

The decision should be to the part.

Make

Buy

Net Income
Increase (Decrease)

Variable manufacturing costs $ $ $ Fixed manufacturing costs Purchase price

Total annual cost

$

$

$

Explanation / Answer

Are we assuming they want at least 17000 parts? If so Make 4.51*17000=76670 2.64*17000=44880 =0 =121550 vs Buy =0 2.64*17000=44880 4.88*17000=82960 =127840 make the part. It's cheaper.

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