Question

Tex's Manufacturing Company can make 200 units of a necessary component part with the following costs: Direct Materials $240,000 Direct Labor 35,000 Variable Overhead 75,000 Fixed Overhead 40,000 If Tex's Manufacturing Company can purchase the component externally for $330,000 and only $15,000 of the fixed costs can be avoided, what is the correct make-or-buy decision

Answer 1

Buy and save $35,000

Step-by-step explanation:

The computation is shown below:

Particulars Make Buy

Direct Materials $240,000

Direct Labor $35,000

Variable Overhead $75,000

Fixed Overhead $15,000

Purchase cost $330,000

Total cost $365,000 $330,000

As we can see that the buying total cost is less than the total making cost so here we can buy the product as it saves the company by $35,000 ($365,000 - $330,000)