Three stars Inc. manufactures prefabricated houses. The firm\'s president. Miche

Question

Three stars Inc. manufactures prefabricated houses. The firm's president. Michelle Brown, is interested in determining whether it would be better to manufacture the doors used in the houses or to buy them from a supplied. The following information, based on production of 500 doors, has been gathered to help determine the best option: Of the fixed overhead costs. Three Stars estimates that it could save $5 per unit of miscellaneous fixed overhead if it purchases the doors from a supplier and allocates all other fixed costs elsewhere. The cost to purchase 500 doors would be $55,000. Required: On the basis of a short-run financial analysis. Should Three Stars make or purchase the doors? Show calculations to support your answer.

Explanation / Answer

urchasing doors:

Cost=55000/500=$110

Avoidable fixed over head-$5 per unit

Making doors:

cost=35+50+5=$100

It is better to make than purchase

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