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Mighty Safe Fire Alarm is currently buying 62,000 motherboards from MotherBoard, Inc. at a price of $66 per board. Mighty Safe is considering making its own motherboards. The costs to make the motherboards are as follows: direct materials, $32 per unit; direct labor, $12 per unit; and variable factory overhead, $15 per unit. Fixed costs for the plant would increase by $87,000. Which option should be selected and why

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Respuesta :

Tundexi

Answer:

d) Make, Increase in profits $434,000

Explanation:

                            Differential analysis

                                               Make                                Buy

Direct material   (62000I*32) $1,984,000

Direct labor              (62000*12)  $744,000

Variable overhead   (62000*15)  $930,000

Purchase cost                                                      (62000*66) $4,092,000

Total relevant cost                      $3,658,000                         $4,092,000

So, the Company Should make because the cost is lower. Increase in profits $434,000 ($,092,000-$3,658,000)

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