Bramble Company must decide whether to make or buy some of its components. The costs of producing 69,800 switches for its generators are as follows. Direct materials $29,700 Variable overhead $45,400 Direct labor $51,806 Fixed overhead $80,400 Instead of making the switches at an average cost of $2.97 ($207,306 : 69,800), the company has an opportunity to buy the switches at $2.74 per unit. If the company purchases the switches, all the variable costs and one-fourth of the fixed costs will be eliminated.

Question

Business

Helena Shepard

2 January, 16:55

Bramble Company must decide whether to make or buy some of its components. The costs of producing 69,800 switches for its generators are as follows. Direct materials $29,700 Variable overhead $45,400 Direct labor $51,806 Fixed overhead $80,400 Instead of making the switches at an average cost of $2.97 ($207,306 : 69,800), the company has an opportunity to buy the switches at $2.74 per unit. If the company purchases the switches, all the variable costs and one-fourth of the fixed costs will be eliminated.

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Aylin Wallace · Answer 1

It is more convenient to continue production in house.

Explanation:

Giving the following information:

The costs of producing 69,800 switches for its generators are as follows. Direct materials $29,700 Variable overhead $45,400 Direct labor $51,806 Fixed overhead $80,400 Instead of making the switches at an average cost of $2.97 ($207,306 : 69,800), the company has an opportunity to buy the switches at $2.74 per unit.

one-fourth of the fixed costs will be eliminated.

Unitary variable cost = (29,700 + 45,400 + 51,806) / 69,800 = $1.82

Make in house = 1.82*69,800 + (80,400*0.25) = $147,136

Buy = 2.74*69,800 = $191,252

It is more convenient to continue production in house.