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