Chapter 11, Problem 3BE

Make or buy

A company manufactures various-sized plastic bottles for its medicinal product. The manufacturing cost for small bottles is $55 per unit (100 bottles), including fixed costs of $12 per unit. A proposal is offered to purchase small bottles from an outside source for $36 per unit, plus $3 per unit for freight. Prepare a differential analysis dated January 25 to determine whether the company should make (Alternative 1) or buy (Alternative 2) the bottles, assuming fixed costs are unaffected by the decision.