FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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E8-7A | Make or Buy | ||||||||||||||
Eastside Company incurs a total cost of $120,000 in producing 10,000 units of a component needed in the assembly of its major product. The component can be purchased from an outside supplier for $11 per unit. A related cost study indicates that the total cost of the component includes fixed costs equal to 25% of the variable costs involved. | |||||||||||||||
a. Should Eastside buy the component if it cannot otherwise use the released capacity? Present your answer in the form of differential analysis. | |||||||||||||||
b. What would be your answer to requirement (a) if the released capacity could be used in a project that would generate $20,000 of contribution margin?
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