Outsourcing Decision
SE 3. Marc Company assembles products from a group of interconnecting parts. The company produces some of the parts and buys some from outside vendors. The vendor for Part X has just increased its price by 35 percent, to $10 per unit for the first 5,000 units and $9 per additional unit ordered each year. The company uses 7,500 units of Part X each year. Unit costs if the company makes the part are as follows:
|
Direct materials |
$3.50 |
|
Direct labor |
2.00 |
|
Variable overhead |
4.00 |
|
Variable selling costs for the assembled product |
3.75 |
Should Marc continue to purchase Part X or begin making it?