My company uses a certain part in its manufacturing process that it buys from an

Question

My 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, my company has 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. The estimated production costs are determined to be:

Direct material                                                            $18

Direct labor                                                                 $8

Variable overhead                                                       $4

Fixed overhead (includes manage at $3 per unit)       $7

Identify the relevant costs to make the part internally.

Explanation / Answer

                                             Make   
Relevant Costs
Direct Materials                     $18.00
Direct labor                             $8.00
Variable Overhead                   $4.00
Fixed Overhead
Manger's Salary                      $3.00
Total  Relevant                   $33.00
                                          ========

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