The crown company must decide whether to make or buy part 128PC. Although Crown's idle equipment could be used to produce up to 10,000 units of the part, the company presently needs only 7,000 units. The estimated annual cost of making part 128PC is as follows
| allocated general manufacturing overhead |
50,000 |
| Depreciation on existing equipt. |
15,00 |
| Annual additional Set up and maintenance |
20,000
|
| Total Fixed Cost |
85,000 |
| Direct materials |
$5 |
| Direct Labor |
6 |
| Variable manufacturing overhead |
$4 |
| Total variable manufacturing cost per unit |
$4 |
Reuten company will sell the part to Crown for $20 per unit
Should Crown make or buy the part, show calculations for your decision