Paradise Manufacturing currently makes one of its parts for a total cost of $3.80 per unit. This cost is based on a normal capacity of 60,000 units. Variable cost are $2.50 per unit. Fixed cost related to making this part is $30,000. Allocated fixed cost are unavoidable and amount to $30,000. Paradise Manufacturing is considering buying the part for $2.80 per unit. Should the company continue making the part or should they buy the part from the outside supplier? Give a numerical justification for your answer.

Paradise Manufacturing currently makes one of its parts for a total cost of $3.80 per unit. This cost is based on a normal capacity of 60,000 units. Variable cost are $2.50 per unit. Fixed cost related to making this part is $30,000. Allocated fixed cost are unavoidable and amount to $30,000. Paradise Manufacturing is considering buying the part for $2.80 per unit. Should the company continue making the part or should they buy the part from the outside supplier? Give a numerical justification for your answer.

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter10: Short-term Decision Making

Section: Chapter Questions

Problem 4EB: Dimitri Designs has capacity to produce 30,000 desk chairs per year and is currently selling all...

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