Answer:
Eggers Company needs to determine whether it is more cost-effective to make the part in-house or to buy it from McMillan Company. To do this, we need to compare the total cost of each alternative.
If Eggers makes the part in-house, the total cost will be the sum of the direct materials, direct labor, variable overhead, and fixed overhead costs. Since Eggers needs 22,000 units of the part and 40% of the fixed overhead will continue irrespective of the decision, the total cost of making the part in-house can be calculated as follows:
Total cost to make = (Direct materials + Direct labor + Variable overhead + Fixed overhead) * Quantity Total cost to make = ($32 + $13 + $21 + ($40 * 0.4)) * 22,000 Total cost to make = $2,145,600
If Eggers buys the part from McMillan Company for $100 per unit, the total cost will be the price per unit multiplied by the quantity needed:
Total cost to buy = Price * Quantity Total cost to buy = $100 * 22,000 Total cost to buy = $2,200,000
Comparing these two values, we can see that it is more attractive for Eggers to make the part in-house rather than buying it from McMillan Company. The difference in cost between these two alternatives is $2,200,000 - $2,145,600 = $54,400.
So, Eggers can save $54,400 by making the part in-house instead of buying it from McMillan Company.
Step-by-step explanation: