Chase Company makes several models of computers for the auto industry. One of th
ID: 2426529 • Letter: C
Question
Chase Company makes several models of computers for the auto industry. One of the components is currently purchased for $215.00 per 100 units. Management is reviewing the possibility of making the part in-house. Annual production of this one model is 75,000 units. Fixed costs are $42,500.00 (which is unchanged whether the part is made or purchased), variable cost per unit for direct materials is $0.75, $0.60 per unit for direct labor, and 0.75 per unit for variable overhead. Using the incremental anaylsis make a decision as to whether Computer Company should manufacture the part or purchase the part from an outside vendor.
Explanation / Answer
Variable cost per producing one unit:
= $0.75+$0.60+$0.75
= $2.10
For 100 units $210.
Company should manufacture the one part in house. Company will have cost savings of $3,750 ($0.05*75,000)