MAKE OR BUY, FUNCTIONAL BASED ANALYSIS
Watanabe Company is currently manufacturing Part NIM 06, producing 15,000 units annually. The part is used in the production of several products made by Watanabe.
The cost per unit for NIM 06 is as follows:
|
Direct materials |
$70.00 |
|
Direct labor |
20.00 |
|
Variable overhead |
3.00 |
|
Fixed overhead |
1.50 |
|
Total |
$94.50 |
Of the total fixed overhead assigned to NIM 06, $12,000 is direct fixed overhead (the annual lease cost of machinery used to manufacture Part NIM 06), and the remainder is common fixed overhead. An outside supplier has offered to sell the part to Watanabe for $94. There is no alternative use for the facilities currently used to produce the part. No significant non unit based overhead costs are incurred.
Required:
1. Should Watanabe Company make or buy Part NIM 06?
2. What is the maximum amount per unit that Watanabe would be willing to pay to an outside supplier?