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 $8.88 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 = $4.96 per item and direct labor = $1.31 per item. Manufacturing overhead is allocated at 200% of direct labor ($2.62 per item). Based on these data, should the item be purchased or manufactured? The total cost of Option A is $ The total cost of Ontion B is $ (Round to the nearest dollar.) (Round to the nearest dollar)

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 $8.88 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 = $4.96 per item and direct labor = $1.31 per item. Manufacturing overhead is allocated at 200% of direct labor ($2.62 per item). Based on these data, should the item be purchased or manufactured? The total cost of Option A is $ The total cost of Ontion B is $ (Round to the nearest dollar.) (Round to the nearest dollar)

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter8: Cost Analysis

Section: Chapter Questions

Problem 5E

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