Question

Bramble’s Manufacturing Company can make 100 units of a necessary component part with the following costs:

Direct Materials	$121000
Direct Labor	24000
Variable Overhead	53000
Fixed Overhead	30000

If Bramble’s Manufacturing Company can purchase the component externally for $190000 and only $2000 of the fixed costs can be avoided, what is the correct make-or-buy decision?

Make and save $15000

Buy and save $15000

Buy and save $10000

Make and save $10000

Answer 1

Answer : Buy and Save $ 10,000
Cost when the component is Manufactured
	$
Direct Materials	1,21,000
Direct Labours	24,000
Variable Overheads	53,000
Fixed Overheads	30,000
Total Cost	2,28,000
Cost when the component is Purchased Externally
	$
Cost to purchase Components	1,90,000
Fixed Overheads that cannot be avoided (30,000 - 2,000 )
28,000
Total Cost	2,18,000
Therefore there is a Saving of $ 10,000 when the component is purchaseded Externally