Review Question 2 ABC Co. wants to know if they should change their equipment or buy the product from an outside company. The cost to buy it from an outside supplier is $18.50. Using the old equipment, the costs are the following: Direct Material Direct Labour Manufacturing Overhead Supervision General Company Overhead Amortization-existing equipment Total Per unit $6.00 $8.40 $1.80 $1.60 $4.00 $1.90 $23.70 Should the company make or buy? Total $ 64,000 $160,000 $224,000 New equipment will be better and much more efficient. It will reduce direct labour by 30%. The new machine will cost $3.50 per unit. Old machine has no salvage value. Variable manufacturing overhead is 40 % of total manufacturing overhead. The General Company Overhead is not affected by the decision to buy the product.

Manufacturing cost is the total cost of procuring or producing a product. In other words, the manufacturing cost is the cost that an individual or business owner undertakes for the manufacturing of goods.