Make-or-Buy, Traditional Analysis Wehner Company is currently manufacturing Part

Question

Make-or-Buy, Traditional Analysis

Wehner Company is currently manufacturing Part ABS-43, producing 51,300 units annually. The part is used in the production of several products made by Wehner. The cost per unit for ABS-43 is as follows:

Of the total fixed overhead assigned to ABS-43, $10,517 is direct fixed overhead (the annual lease cost of machinery used to manufacture Part ABS-43), and the remainder is common fixed overhead. An outside supplier has offered to sell the part to Wehner for $56.95. There is no alternative use for the facilities currently used to produce the part. No significant non-unit-based overhead costs are incurred.

Required:

1. Should Wehner Company make or buy Part ABS-43?
Wehner should the part. This will produce total cost savings of $.

2. What is the maximum amount per unit that Wehner would be willing to pay to an outside supplier? Round your answer to the nearest cent.
$ per unit

Direct materials $43.00 Direct labor 10.85 Variable overhead 3.25 Fixed overhead 4.30   Total $61.40

Explanation / Answer

1 Per unit Total Make Buy Make Buy Direct materials 43 2205900 Direct labor 10.85 556605 Variable manufacturing overhead 3.25 166725 Fixed manufacturing overhead traceable 10517 Purchase cost 56.95 2921535 Total 2939747 2921535 Wehner should buy the part. This will produce total cost savings of $ 18212 (2939747-2921535) 2 Maximum amount per unit =(2939747/51300)= $57.31

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