Answer:
It is cheaper to make the units in-house.
Explanation:
Giving the following information:
Buy:
Purchase price= $65
Make:
Direct materials= $28 per unit
Direct labor= $8 per unit
Variable factory overhead= $17 per unit.
Fixed costs for the plant would increase by $76,000.
We need to calculate the total cost for each option. The best option is the one with lower total costs:
Buy:
Total cost= 60,000*65= $3,900,000
Make:
Total cost= 60,000*(28 + 8 + 17) + 76,000
Total cost= 3,180,000 + 76,000
Total cost= $3,256,000
It is cheaper to make the units in-house.
