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Solution Library
Decision About Purchasing From Outside Supplier
Question
DeMarcus Industries manufactures a widget used in several models of its automatic dishwashers. Monthly production costs for 5,000 units are:
Direct materials $40,000
Direct labor 10,000
Variable support costs 25,000
Fixed support costs 20,000
Total costs $95,000
It is estimated that 20% of the fixed support costs assigned to the widgets will no longer be incurred if the company purchases the part from the outside supplier for $15.50 per unit. Considering all relevant information, what should DeMarcus do?
Summary
The question belongs to Finance and it discusses about the decision that the firm should take about purchasing the product.
Total Word Count 35
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