Crafty Tools manufactures an electric motor that it uses in several of its produ
ID: 2349760 • Letter: C
Question
Crafty Tools manufactures an electric motor that it uses in several of its products. Management is considering whether to continue manufacturing the motors or to buy them from an outside source. The following information is available:1. The company needs 10,000 motors per year. The motors can be purchased from an outside supplier at a cost of $20 per unit.
2. The unit cost of manufacturing the motors is $42, computed as follows:
Direct materials $96,000
Direct labor 120,000
Factory overhead:
Variable 90,000
Fixed 114,000
Total manufacturing costs $420,000
Cost per unit ($420,000
Explanation / Answer
MAnufacturing cost for 10000 motors MAke Buy Incremental analysis DM 96000 0 96000 DL 120000 0 120000 Variable F O/H 90000 22500 67500 Fixed F. O/H 114000 110000 4000 oppurtunity cost 70000 0 70000 Purchase price of part 200000 (200000) total cost to acquire $490000 332500 157500 Therefore we must buy.