Make-or-Buy Decisions
Response to the following problem:
Tricia Company has been manufacturing 9,000 units of part Y for its products. The unit cost for the part is as follows
Direct materials $ 9
Direct labor 24
Variable manufacturing overhead 12
Faced manufacturing overhead 18
Total $63
A supplier has offered to sell 9,000 units of part Y to Tricia for $54 each. If the part is purchased, Tricia can use its facilities to manufacture another product, which would generate a contribution margin of $12,000. Seventy-five percent of the fixed manufacturing overhead costs are indirect and will still be incurred even if the part is purchased.
Compute the net differential cost in deciding whether to make or buy the part.