Chapter 11, Problem 13F15

To determine

Decision of Making or Buying and Contribution margin:

When a company takes decision, whether to manufacture a component internally or buy from outside it is called make or but decision. While taking the decision, the variable costs of manufacturing the product is compared with the purchase price of the product when bought from the outside supplier.

In relevant costing, the decision to make or buy a product component depends upon the analysis of costs. Avoidable fixed costs and opportunity costs are also considered in the analysis

While finding the contribution margin we have to deduct all the variable costs of manufacturing from selling price.

The number units to produce from each product to maximize the profits , when there is a capacity constraint of raw material that is 160,000 pounds.