Ask Question
13 July, 04:34

Bonita's Manufacturing Company can make 100 units of a necessary component part with the following costs: Direct Materials $119000 Direct Labor 24000 Variable Overhead 53000 Fixed Overhead 30000 If Bonita's Manufacturing Company can purchase the component externally for $195000 and only $6000 of the fixed costs can be avoided, what is the correct make-or-buy decision?

+2
Answers (1)
  1. 13 July, 06:43
    0
    The correct decision is to buy the component.

    Explanation:

    We need to calculate the manufacturing cost of the product and then compare it to the purchase price and the fixed cost after purchase.

    Manufacturing Cost:

    Direct Material $119,000

    Direct Labor $24,000

    Variable Overhead $53,000

    Fixed Overhead $30,000

    Total cost $226,000

    Purchasing cost:

    Purchase price $195,000

    Fixed cost $6,000

    Total cost $201,000

    As the cost to purchase price is lower than the component manufactured, so, Bonita's Manufacturing Company should buy this component to save cost.
Know the Answer?
Not Sure About the Answer?
Find an answer to your question ✅ “Bonita's Manufacturing Company can make 100 units of a necessary component part with the following costs: Direct Materials $119000 Direct ...” in 📘 Business if you're in doubt about the correctness of the answers or there's no answer, then try to use the smart search and find answers to the similar questions.
Search for Other Answers