JFK Manufacturing Corp. is using 10,000 units of part no. 300 as a component to assemble one of its products. It costs the company $18 per unit to produce it internally, computed as follows:
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Direct materials
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$ 45,000
|
|
Direct labor
|
50,000
|
|
Variable overhead
|
40,000
|
|
Fixed overhead
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45,000
|
|
Total cost
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$180.000
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An outside vendor has just offered to supply the part for $16 per unit. If the company stops producing this part, one-third of the fixed overhead would be avoided. Should the company make or buy?