A company is analyzing a make-versus-purchase situation for a component used in several products, and the engineering department has developed these data: Option A: Purchase 10,000 items per year at a fixed price of Php 425 per item. The cost of placing the order is negligible according to the present cost accounting procedure. Option B: Manufacture 10,000 items per year, using available capacity in the factory. Cost estimates are direct materials = Php 250 per item and direct labor = Php 75 per item. Manufacturing overhead is allocated at 200% of direct labor (= Php 150 per item). Based on these data, should the item be purchased or manufactured?

A company is analyzing a make-versus-purchase situation for a component used in several products, and the engineering department has developed these data: Option A: Purchase 10,000 items per year at a fixed price of Php 425 per item. The cost of placing the order is negligible according to the present cost accounting procedure. Option B: Manufacture 10,000 items per year, using available capacity in the factory. Cost estimates are direct materials = Php 250 per item and direct labor = Php 75 per item. Manufacturing overhead is allocated at 200% of direct labor (= Php 150 per item). Based on these data, should the item be purchased or manufactured?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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