Redbud Company uses a certain part in its manufacturing process that it buys fro

Question

Redbud Company uses a certain part in its manufacturing process that it buys from an outside supplier for $44 per part plus another $6 for shipping and other purchasing-related costs. The company will need 10,000 of these parts in the next year and is considering making the part internally. After performing a capacity analysis, Redbud determined that it has sufficient unused capacity to manufacture the 10,000 parts but would need to hire a manager at an annual salary of $40,000 to oversee this production activity. Estimated production costs are determined to be:

56

What are the other factors that Redbud 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. (B)

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

Redbud Company uses a certain part in its manufacturing process that it buys from an outside supplier for $44 per part plus another $6 for shipping and other purchasing-related costs. The company will need 10,000 of these parts in the next year and is considering making the part internally. After performing a capacity analysis, Redbud determined that it has sufficient unused capacity to manufacture the 10,000 parts but would need to hire a manager at an annual salary of $40,000 to oversee this production activity. Estimated production costs are determined to be:

Explanation / Answer

Cost of manufacturing the parts self Particulars Amount Direct Material $                         28.00 Direct Labor $                         12.00 Variable Overhead $                            6.00 Total Variable Costs $                         46.00 Fixed Costs $                         10.00 Total Costs $                         56.00 Total Cost of procuring part from Outside Supplier Particulars Amount Cost of procuring part from Outside Supplier $                         44.00 Shipping and other purchasing-related costs $                            6.00 Total Costs $                         50.00 The other factors that Redbud Company should consider in deciding to make the part internally 1. Total sales quantity. (A) 2. Since Redbud Company is considering the use of currently available capacity, it should evaluate any relevant opportunity costs of using this capacity for more profitable activities. © Since the variable cost of making the part is only $46.00 Redbud Company should consider making the part and utilise the spare capacity if any to supply to other vendors at a profit thus covering its fixed costs and also earning a profit.

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