PROBLEM- MAKE OR BUY DECISION
Bell Company must decide whether to make or buy subassembly XYZ. Bell Company needs 10,000 units of subassembly XYZ. A cost analyst has prepared the following estimates on making the subassembly:
Direct materials costs $4 per unit
Direct labor costs 6 per unit
Variable overhead costs 6 per unit
Total variable costs $16 per unit
Additional setup and maintenance costs $30,000
Allocated fixed factory overhead 60,000
Total fixed costs $90,000 per year
Tracy Manufacturing LLC is willing to sell Bell Company the subassembly for $20 per unit.
Required: Should Bell Company make or buy the subassembly? Support your answer with analysis.