Lewis Auto Company manufactures a part for use in its production of automobiles. When 1,000 items are produced, the costs per unit are: Direct Materials $ 12 Direct manufacturing Labor 60 Variable manufacturing Overhead 24 Fixed Manufacturing Overhead 32 Total $ 128 Monty Company has offered to sell Lewis Auto Company 1,000 units of the part for $120 per unit. The plant facilities could be used to manufacture another part at a savings of $22,000 if Lewis auto accepts the supplier's offer. In addition, $20 per unit of fixed manufacturing overhead on the original part would be eliminated. Using a Make versus Buy analysis, what alternative is best for Lewis Auto Company? Type your work below and clearly indicate whether the firm should Make or Buy the part. By how much better off will the firm be using your decision?
Lewis Auto Company manufactures a part for use in its production of automobiles. When 1,000 items are produced, the costs per unit are: Direct Materials $ 12 Direct manufacturing Labor 60 Variable manufacturing Overhead 24 Fixed Manufacturing Overhead 32 Total $ 128 Monty Company has offered to sell Lewis Auto Company 1,000 units of the part for $120 per unit. The plant facilities could be used to manufacture another part at a savings of $22,000 if Lewis auto accepts the supplier's offer. In addition, $20 per unit of fixed manufacturing overhead on the original part would be eliminated. Using a Make versus Buy analysis, what alternative is best for Lewis Auto Company? Type your work below and clearly indicate whether the firm should Make or Buy the part. By how much better off will the firm be using your decision?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Lewis Auto Company manufactures a part for use in its production of automobiles. When 1,000 items are produced, the costs per unit are:
|
Direct Materials |
$ 12 |
| Direct manufacturing Labor | 60 |
| Variable manufacturing |
24 |
| Fixed Manufacturing Overhead | 32 |
| Total | $ 128 |
Monty Company has offered to sell Lewis Auto Company 1,000 units of the part for $120 per unit. The plant facilities could be used to manufacture another part at a savings of $22,000 if Lewis auto accepts the supplier's offer. In addition, $20 per unit of fixed manufacturing overhead on the original part would be eliminated.
Using a Make versus Buy analysis, what alternative is best for Lewis Auto Company? Type your work below and clearly indicate whether the firm should Make or Buy the part. By how much better off will the firm be using your decision?
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