Edidas Company needs 20,000 units of Part GX to use in producing one of its products. If Edidas buys the Part GX from McMillan Company for $79 instead of making it, Edidas will not use the released facilities in another manufacturing activity. Twenty percent of the fixed overhead will continue irrespective of CEO Donald Mickey’s decision. The cost per unit data are as follows: Cost to make the part ($) Direct Materials 30 Direct Labor 15 Variable Overhead 20 Fixed Overhead 20 85 Required 1. Explain which alternative is more attractive to Edidas, make or buy Part GX. 2. Assume there is new information that Edidas is negotiating to purchase cheaper raw materials from supplier (Twenty percent lower price). Is this information relevant or irrelevant? On the basis of financial considerations alone, should Edidas make or buy Part GX? Show your calculations 3. Based on requirement 2, what are relevant qualitative factors that Edidas should consider to decide whether to make or buy Part GX? (at least one factor for each decision Make or Buy)
Edidas Company needs 20,000 units of Part GX to use in producing one of its products. If Edidas buys the Part GX from McMillan Company for $79 instead of making it, Edidas will not use the released facilities in another manufacturing activity. Twenty percent of the fixed
The cost per unit data are as follows:
Cost to make the part ($)
Direct Materials 30
Direct Labor 15
Variable Overhead 20
Fixed Overhead 20
85
Required
1. Explain which alternative is more attractive to Edidas, make or buy Part GX.
2. Assume there is new information that Edidas is negotiating to purchase cheaper raw materials from supplier (Twenty percent lower price). Is this information relevant or irrelevant?
On the basis of financial considerations alone, should Edidas make or buy Part GX? Show your calculations
3. Based on requirement 2, what are relevant qualitative factors that Edidas should consider to decide whether to make or buy Part GX? (at least one factor for each decision Make or Buy)
Step by step
Solved in 4 steps
