DeMarcus Industries manufactures a part used in several models of its automatic
ID: 2537688 • Letter: D
Question
DeMarcus Industries manufactures a part used in several models of its automatic dishwashers. Monthly production costs for 5,000 units are:
Direct materials
$40,000
Direct labour
10,000
Variable support costs
25,000
Fixed support costs
20,000
Total costs
$95,000
It is estimated that 20% of the fixed support costs assigned to the part will no longer be incurred if the company purchases the part from the outside supplier for $15.50 per unit.
Required:
1.
Considering all relevant information, what should DeMarcus do?
2.
What other factors should DeMarcus take into consideration before making this decision?
Direct materials
$40,000
Direct labour
10,000
Variable support costs
25,000
Fixed support costs
20,000
Total costs
$95,000
DeMarcus Industries manufactures a part used in several models of its automatic dishwashers Monthly production costs for 5,000 units are: Direct materials Direct labour Variable support costs Fixed support costs $40,000 10,000 25,000 20,000 Total costs It is estimated that 20% of the fixed support costs assigned to the part will no longer be incurred if the company purchases the part from the outside supplier for $15.50 per unit. Required: 1. Considering all relevant information, what should DeMarcus do? 2. What other factors should DeMarcus take into consideration before making this decisionExplanation / Answer
1.
DeMarcus should purchase the part from the outside supplier since the total costs of purchasing are less than the total costs of making the part internally.
2. The other factors that should be taken into consideration by DeMarcus before making a decision to buy from the outside supplier is the quality of the part supplied and whether the supplier is able to deliver the parts in time as required by the delivery schedules of DeMarcus.
Make Buy Direct materials 40000 0 Direct labor 10000 0 Variable support costs 25000 0 Fixed support costs 20000 16000 Purchase price (5000 x $15.50) 0 77500 Total costs $ 95000 93500Related Questions
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