Cubic Limited currently produces all components for its most popular computer monitor. A supplier has...
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Cubic Limited currently produces all components for its most popular computer monitor. A supplier has approached Cubic with an opportunity to purchase part X47 for $17 per unit. The cost breakdown for Cubic to produce each monitor is: direct labour: $12/unit; direct materials: $10/unit; variable manufacturing overhead: $3.85/unit; and fixed manufacturing overhead: $7/unit.
If Cubic decides to purchase the part instead of continuing to manufacture it, they would reduce direct labour costs by $1.80/unit and reduce direct materials by $1/unit.
Cubic produces 75,000 of this model each year.
Required: Prepare an analysis of both options for the Production Manager. Your analysis must include a recommendation of whether Cubic should purchase the part from an external supplier, or continue to manufacture the part.
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