Question - Make or buy decision: Relevant costs and qualitative factors
Jain Simmons Company needs 10 000 units of a certain part to be used in production. If Jain Simmons buys the part from Sullivan Company instead of making it themselves, Jain Simmons could not use the present facilities for another manufacturing activity. Sixty per cent of the fixed overhead applied will continue regardless of what decision is made. The following quantitative information is available regarding the situation presented:
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Cost to make the part:
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Direct materials
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$6
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Direct labour
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24
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Variable overhead
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12
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Fixed overhead applied
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15
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$57
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Cost to buy the part:
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$53
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Required -
a. In deciding whether to make or buy the part, what are Jain Simmons's total relevant costs to make the part?
b. Which alternative (make or buy) is more desirable for Jain Simmons and by what amount?
c. Suppose that Jain Simmons Company is in an area of the country with high unemployment and that it is unlikely that displaced employees will ?nd other employment. How might that impact your decision?