Problem
9 Trader Tom's can buy widgets from The Widget Company for $14 apiece or make them in-house. Tom already has a factory for making thingamajigs and current fixed manufacturing costs are $11,000. Here is how Tom expects his costs to look with 1,000 widgets being built in-house:
Hourly Rate Paid to Workers in Widget Department: $15
Hourly Rate Paid to the Widget Manufacturing Dept. Supervisor: $30
Man hours per widget: 0.25 hours
Direct Materials per widget in kilograms: 0.3kg
Cost per Kilogram of Direct Materials: $3.50
Fixed Manufacturing Overhead: $12,000
What is Trader Tom's Total Unit Cost to produce one Widget in-house?