Problem: Make or buy Yoklic Corporation currently manufactures a subassembly for its main product. The costs per unit are as follows:
Direct materials $ 4.00
Direct labor 30.00
Variable overhead 15.00
Fixed overhead 25.00
Total $74.00
Regina Corp has contacted Yoklic with an offer to sell it 5,000 subassemblies for $55.00 each.
REQUIRED:
Question 1: Should Yoklic make or buy the subassemblies? Create a schedule that shows the total quantitative differences between the two alternatives.
Question 2: The accountant decided to investigate the fixed costs to determine whether any incremental changes would occur if the subassembly were no longer manufactured. The accountant believes that Yoklic will eliminate $50,000 of fixed overhead if it accepts the proposal. Does this new information change the decision? Show your calculations.
Question 3: Ignore the information in part (B). Now suppose Yoklic could use the capacity released under the buy alternative to make a different subassembly that it currently purchases from a vendor for $20. The manufacturing engineer believes that the company can use the existing equipment to manufacture the subassembly for $13 each (direct materials, direct labor, and variable overhead). The firm uses about 5,000 of these subassemblies. Create a schedule that shows the difference between the two alternatives.