Problem 5: 10 points
Caballero Manufacturing incurs unit costs of $7.90 ($6.10 variable and $1.80 fixed) in making a sub assembly part for its finished product. A supplier offers to make 12,500 of the assembly part at $5.75 per unit. If the offer is accepted, Caballero will save all variable costs but no fixed costs.
Instructions: Prepare an analysis showing the total cost savings, if any, Caballero will realize by buying the part.
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Make |
Buy |
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Total annual cost |
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Caballero Company should _______________ the part because total annual costs to |