Assignment:
MAKE OR BUY?
Mountain Goat Cycles has just received an offer from an outside supplier to provide a heavy-duty shifter for one of its most popular models. The offer is to provide 8,000 shifters a year at a total cost of $19 per unit. At present Mountain Goat produces the shifters internally. You are being asked for your recommendation on whether to accept the offer or to continue making it in house.
So far, you have the following cost data from the existing production records:
|
ITEM
|
UNIT COST$
|
|
Direct Materials
|
6
|
|
Direct Labor
|
4
|
|
Variable Overhead
|
1
|
|
Supervision Salary
|
3
|
|
Depreciation (Special)
|
2
|
|
Allocated General Overhead (including depreciation)
|
5
|
When you asked what "special" depreciation meant, you were told that it was cost associated with tooling that was purchased when Mountain Goat originally set up the production equipment to produce the shifters.
What is your recommendation?