Kuat Drive Inc. manufactures machine parts for Star Destroyer engines. CEO Adhi Mundy is considering an offer from a subcontractor to provide 2,000 units of product R2D2 for $120,000. If Kuat Drive does not purchase these parts from the subcontractor, it must continue to produce them in-house with these costs: Cost per unit ($)Direct Materials28Direct Labor18Variable Overhead16Allocated Fixed Overhead4Questions:What is the relevant cost to make the product internally?What is the estimated increase or decrease in short-term operating profit of producing the product internally versus purchasing the product from a supplier?Which alternative is more attractive to Kuat Drive Inc, make or buy the machine parts?What strategic considerations likely bear on this make vs buy decision? (at least 2 considerations)

Answered: Kuat Drive Inc. manufactures machine…

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter10: Short-term Decision Making

Section: Chapter Questions

Problem 6PA: Gent Designs requires three units of part A for every unit of Al that it produces. Currently, part A...

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Kuat Drive Inc. manufactures machine parts for Star Destroyer engines. CEO Adhi Mundy is considering an offer from a subcontractor to provide 2,000 units of product R2D2 for $120,000. If Kuat Drive does not purchase these parts from the subcontractor, it must continue to produce them in-house with these costs:

	Cost per unit ($)
Direct Materials	28
Direct Labor	18
Variable Overhead	16
Allocated Fixed Overhead	4

Questions:

What is the relevant cost to make the product internally?
What is the estimated increase or decrease in short-term operating profit of producing the product internally versus purchasing the product from a supplier?
Which alternative is more attractive to Kuat Drive Inc, make or buy the machine parts?
What strategic considerations likely bear on this make vs buy decision? (at least 2 considerations)

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