JFK Manufacturing Corp. is using 10,000 units of part no. 300 as a component to assemble one of its products. It costs the company $18 per unit to produce it internally, computed as follows:
|
Direct materials |
$ 45,000 |
|
Direct labor |
50,000 |
|
Variable overhead |
40,000 |
|
Fixed overhead |
45,000 |
|
Total cost |
$180.000 |
An outside vendor has just offered to supply the part for $16 per unit. If the company stops producing this part, one third of the fixed overhead would be avoided. Should the company make or buy?