Answer :
To determine whether Almost Summer Break (ASB) should make their own components or purchase them from a third party, we need to calculate the total per unit cost of making the component. Here are the costs provided:
- Direct materials: $1.50
- Direct labor: $8.75
- Variable overhead: $2.80
- Fixed overhead: $3.50
Adding these costs together gives us the total per unit cost to make the component:
\[ \text{Total per unit cost} = \$1.50 + \$8.75 + \$2.80 + \$3.50 \]
Let's calculate this:
\[ \text{Total per unit cost} = \$16.55 \]
Therefore, the total per unit cost for ASB to make the component is $16.55.
ASB should compare this cost with the price quoted by the third party to determine the more economical option. If the third-party cost is less than $16.55 per unit, it would be cheaper to purchase the component. If it is more, then ASB should consider making the component in-house. Additionally, ASB should consider other factors such as quality, reliability, and any potential strategic advantages or disadvantages in making or buying the component.
- Direct materials: $1.50
- Direct labor: $8.75
- Variable overhead: $2.80
- Fixed overhead: $3.50
Adding these costs together gives us the total per unit cost to make the component:
\[ \text{Total per unit cost} = \$1.50 + \$8.75 + \$2.80 + \$3.50 \]
Let's calculate this:
\[ \text{Total per unit cost} = \$16.55 \]
Therefore, the total per unit cost for ASB to make the component is $16.55.
ASB should compare this cost with the price quoted by the third party to determine the more economical option. If the third-party cost is less than $16.55 per unit, it would be cheaper to purchase the component. If it is more, then ASB should consider making the component in-house. Additionally, ASB should consider other factors such as quality, reliability, and any potential strategic advantages or disadvantages in making or buying the component.
