Pumpkin Company needs 20,000 units of a certain part to use in one of its products. The following information is available: Cost to Pumpkin to make the part: Direct materials ................. $ 4 Direct labor ..................... 16 Variable manufacturing overhead .. 8 Fixed manufacturing overhead ..... 10 $ 38 Cost to buy the part from the Oriole Company ............. $ 36 Oriole Company has offered to sell this part to Pumpkin company for $36 each. If Pumpkin buys the part from Oriole instead of making it, Pumpkin would not have any use for the released capacity. In addition, 60% of the fixed manufacturing overhead costs will continue regardless of what decision is made. Assume that direct labor is an avoidable cost in this decision. In deciding whether to make or buy the part, the total relevant costs to make the part are:
Pumpkin Company needs 20,000 units of a certain part to use in one of its products. The following information is available:
Cost to Pumpkin to make the part:
Direct materials ................. $ 4
Direct labor ..................... 16
Variable manufacturing
Fixed manufacturing overhead ..... 10
$ 38
Cost to buy the part from the Oriole Company ............. $ 36
Oriole Company has offered to sell this part to Pumpkin company for $36 each. If Pumpkin buys the part from Oriole instead of making it, Pumpkin would not have any use for the released capacity. In addition, 60% of the fixed
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