Reno Company needs 2,200 drive trains, a major component used in their manufactu
ID: 2559306 • Letter: R
Question
Reno Company needs 2,200 drive trains, a major component used in their manufacturing of jet skis. It can buy the drive trains from Vegas Parts Manufacturing for $2,900 each. Reno plant can manufacture the drive trains for the following costs per unit: Direct materials Direct manufacturing labor Variable manufacturing overhead Fixed manufacturing overhead $1,200 900 450 750 $3,400 Total If Reno buys the drive trains from Vegas, 50% of the fixed manufacturing overhead applied will not be avoided. Required: a. Should Reno make or buy the drive trains? b. What additional factors should Reno consider in deciding whether or NOT to make or buy the drive trains?Explanation / Answer
For part a. If buy drive trains then cost is $2900 each and if manufactured then it will be.. direct materials 1200 p.u , direct labour 900p.u.,variable overhead 450p.u. and unavoidable fixed overhead is 50%of 750p.u=375 i.e. total $2925 each so it is better to buy as we can save $25each . For part b. Additional factors are quantity of goods, competency know how, availability of resources.