Tonys Electronics Corporation needs 12,000 units of a certain part to be used in the production of...

Question

Tonys Electronics Corporation needs 12,000 units of a certain part to be used in the production of its karaoke machines. If Tonys Electronics buys the part from
 Scott Company instead of making it, Tonys could not use the present facilities for another manufacturing activity. Sixty percent of the fixed overhead applied
 will continue regardless of what decision is made. The following quantitative information is available regarding the situation presented: Cost to make the part:
 Direct materials $5 Direct labor 25 Variable overhead 12 Fixed overhead applied 15 $57 Cost to buy the part: $45 A. In deciding whether to make or buy the part,
 what are Tonys total relevant costs to make the part? B. Which alternative (make or buy) is more desirable for Tonys and by what amount? C. Suppose that Tonys
 Electronics Corporation is in an area of the country with high unemployment and that is unlikely that displaced employees will find other employment. How might
 that affect your decision?

Robert · Accepted Answer

Direct Material
	Direct Material
	$5
	Direct Labor
	$25
	Variable Overhead
	$12
	Fixed Overhead=(57/15)
	3.8
	Total cost to make
	$46
	Cost to buy
	$45
	Benefit of buying=(46-45)
	$1
a>Total cost to make =46
b>Buying is more desirable as there is a benefit of $1 per unit.

Tonys Electronics Corporation needs 12,000 units of a certain part to be used in the production of its karaoke machines. If Tonys Electronics buys the part from Scott Company instead of making it,...

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