ABC Company must decide whether it must continue to produce an engine component or buy it from Engine Co. for P25,000 each. The demand for the coming year is 20 units. The costs of producing a single unit of the engine component are as follows: Direct materials P13,000 Direct labor 7,000 Factory Overhead (80% fixed) 10,000 Total P30,000 If ABC buys the components, the facility now used to make the components can be rented out to another firm for P100,000. REQUIREMENTS: 1. Should ABC make or buy the components? 2. How much is the maximum amount that ABC is willing to pay an outside supplier for the engine component?
ABC Company must decide whether it must continue to produce an engine component or buy it from Engine Co. for P25,000 each. The demand for the coming year is 20 units. The costs of producing a single unit of the engine component are as follows:
Direct materials P13,000
Direct labor 7,000
Factory
Total P30,000
If ABC buys the components, the facility now used to make the components can be rented out to another firm for P100,000.
REQUIREMENTS:
1. Should ABC make or buy the components?
2. How much is the maximum amount that ABC is willing to pay an outside supplier for the engine component?
Pls show solutions per requirement.
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