A vacuum manufacturer has prepared the following cost data for manufacturing
A vacuum manufacturer has prepared the following cost data for manufacturing one of its engine components
based on the annual production of 50,000 units.
Description Cost per Month
Direct Materials $75,000
Direct Labor $100,000
In addition, variable factory overhead is applied at $7.50 per unit. Fixed factory overhead is applied at 150% of
direct labor cost per unit. The vacuums sell for $150 each. A third party has offered to make the engines for
$60 per unit. 75% of fixed factory overhead, which represents executive salaries, rent, depreciation, and taxes,
continue regardless of the decision. Should the company make or buy the engines?