Exercise 16.18 LO 16-2, 16-3 The make or buy decision Redbud Company uses a certain part in its manufacturing process that it buys from an outside supplier for $36 per part plus another $5 for shipping and other purchasing-related costs. The company will need 18,000 of these parts in the next year and is considering making the part internally. After performing a capacity analysis, Redbud determined that it has sufficient unused capacity to manufacture the 18,000 parts but would need to hire a manager at an annual salary of $54,000 to oversee this production activity. Estimated production costs are determined to be as follows: Direct material.. Direct labor. Variable overhead. Fixed overhead (includes manager at $4 per unit). Total unit cost.. Required: a. Identify the relevant costs to make this part internally. b. Should Redbud produce the part or continue to buy it from the outside supplier? c. What other factors are important to this decision? $23 10 5 8 $46 page 637

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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Exercise 16.18
LO 16-2, 16-3
The make or buy decision Redbud Company uses a certain part in its manufacturing process that it buys from an outside supplier for $36 per part plus another $5 for shipping and other purchasing-related costs. The company will need 18,000
of these parts in the next year and is considering making the part internally. After performing a capacity analysis, Redbud determined that it has sufficient unused capacity to manufacture the 18,000 parts but would need to hire a manager at an
annual salary of $54,000 to oversee this production activity. Estimated production costs are determined to be as follows:
Direct material..
Direct labor.
Variable overhead.
Fixed overhead (includes manager at $4 per unit).
Total unit cost..
Required:
a. Identify the relevant costs to make this part internally.
b. Should Redbud produce the part or continue to buy it from the outside supplier?
c. What other factors are important to this decision?
$23
10
5
8
$46
page 637
Transcribed Image Text:Exercise 16.18 LO 16-2, 16-3 The make or buy decision Redbud Company uses a certain part in its manufacturing process that it buys from an outside supplier for $36 per part plus another $5 for shipping and other purchasing-related costs. The company will need 18,000 of these parts in the next year and is considering making the part internally. After performing a capacity analysis, Redbud determined that it has sufficient unused capacity to manufacture the 18,000 parts but would need to hire a manager at an annual salary of $54,000 to oversee this production activity. Estimated production costs are determined to be as follows: Direct material.. Direct labor. Variable overhead. Fixed overhead (includes manager at $4 per unit). Total unit cost.. Required: a. Identify the relevant costs to make this part internally. b. Should Redbud produce the part or continue to buy it from the outside supplier? c. What other factors are important to this decision? $23 10 5 8 $46 page 637
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