. Ricky-Bobby Company uses 10,000 units of a part in its production process. The

Question

. Ricky-Bobby Company uses 10,000 units of a part in its production process. The costs to make a part are:

           

DM per unit

$12

DL per unit

$25

VOH per unit

$13

FOH per unit

$30

Ricky-Bobby has received a quote of $60 from a potential supplier for this part. If Ricky-Bobby buys the part, 40 percent of the fixed overhead would continue.

Indicate whether Ricky-Bobby should make or buy the part and the dollar amount difference between make and buy.

DM per unit

$12

DL per unit

$25

VOH per unit

$13

FOH per unit

$30

Explanation / Answer

Rick-Bobby should buy the part. so he can save $80,000 ($800,000-$720,000) in cost

Make buy Direct material 10,000*$12 = $120,000 Direct labour 10,000*$25 = $250,000 Variable overhead 10,000*$13 = $130,000 Fixed overhead 10,000*$30 = $300,000 $300,000*40% = $120,000 Purchase price 10,000*$60 = $600,000 Total cost $                             800,000 $                                   720,000

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