Please include step by step inctruction for this if possible - Thank you very mu
ID: 2572147 • Letter: P
Question
Please include step by step inctruction for this if possible - Thank you very much.
6-46 Make or Buy Eaton Corporation, based in Cleveland, Ohio, is a global manufacturer o products that s highly engineered erve industrial, vehicle, construction, commercial, aerospace, and semiconductor It frequently subcontracts work to other manufacturers, depending on whether Eaton's fully occupied. Suppose Eaton is about to make some final decisions regarding the cilities are use of its manufacturing facilities for the coming year The following are the costs of making part ML7X, a key com ponent of an emissions control system: Total Cost for 50,000 units $400,000 300,000 150,000 300.000 $1,150,000 Cost Per Unit Direct material Direct labor Variable factory overhead Fixed factory overhead Total manufacturing costs 23 Another manufacturer has offered to sell the same part to Eaton for $20 each. The fixed o consists of depreciation, property taxes, insurance, and supervisory salaries. All the fixed overhead would continue if Eaton bought the component except that the cost of S100,000 verhead pertaining to some supervisory and custodial personnel could be avoided. 1. Assume that the capacity now used to make parts will become id 2. Assume that the capacity now used to make parts will either (a) le if the parts are pur- chased. Should Eaton buy or make the parts? be rented to a nearby manufacturer for S65,000 for the year or (b) be used to make oil filters that will yield a profit contribution of $200,000. Should Eaton buy or make part MLTX?Explanation / Answer
Solution:-
1.
Eaton should make the parts due to least cost.
2.
Eaton should buy ML7X and used released capacity to make oil filters.
Please Rate or comment if you have any doubt regarding this solution.
Statement of comparative cost Manufacturing Purchasee Cost to be incurred: Direct material $ 8 Purchase cost $ 20 Direct labor 6 Variable factory overhead 3 Avoidable fixed factory overhead 2 $ 19 $ 20