What is the relevant cost per unit to make the product internally? 2. What is the estimated increase or decrease in short-term operating profit of producing the product internally versus purchasing the product from a supplier?
What is the relevant cost per unit to make the product internally? 2. What is the estimated increase or decrease in short-term operating profit of producing the product internally versus purchasing the product from a supplier?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Make or Buy Terry Inc. manufactures machine parts for aircraft engines. CEO Bucky Walters is considering an offer from a subcontractor to provide 2,800 units of product OP89 for $131,600. If Terry does not purchase these parts from the subcontractor, it must continue to produce them in-house with these costs:
| Cost per Unit | |||
| Direct materials | $ | 22 | |
| Direct labor | 15 | ||
| Variable |
13 | ||
| Allocated fixed overhead | 6 | ||
Required:
1. What is the relevant cost per unit to make the product internally?
2. What is the estimated increase or decrease in short-term operating profit of producing the product internally versus purchasing the product from a supplier?
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