Outside-is-Cold Inc. must decide whether to make or buy the lining used in its winter coats. The cost of producing 60,000 linings for its winter coats are as follows. Per Unit Total Direct materials $0.50 $30,000 Direct labour 0.70 42,000 Variable overhead. 0.75 45,000 Fixed overhead 1.00 60,000 Total $2.95 $177,000 The company has an opportunity to buy the lining from an outside supplier at $2.75 per lining. If the company purchases the lining, all the variable costs and one third of the fixed costs will be eliminated. Should Outside-is-Cold Inc. make the lining?
1) Outside-is-Cold Inc. must decide whether to make or buy the lining used in its winter coats. The cost of producing 60,000 linings for its winter coats are as follows.
Per Unit Total
Direct materials $0.50 $30,000
Direct labour 0.70 42,000
Variable overhead. 0.75 45,000
Fixed overhead 1.00 60,000
Total $2.95 $177,000
The company has an opportunity to buy the lining from an outside supplier at $2.75 per lining. If the company purchases the lining, all the variable costs and one third of the fixed costs will be eliminated. Should Outside-is-Cold Inc. make the lining?
No, because it would cost $28,000
No, because they would save $6,000
Yes, because they would save $28,000
Yes, because they would save $6,000
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