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Part U67 is used in one of Broce Corporation's products. The company's Accounting Department reports the following costs of producing the 15,700 units of the part that are needed every year.

Direct materials

Direct labor

Variable overhead

Supervisor's salary

Depreciation of special equipment

Allocated general overhead

Per Unit

$ 2.60

$ 3.60

$ 6.40

$ 6.90

$ 8.00

$ 5.10

An outside supplier has offered to make the part and sell it to the company for $28.00 each. If this offer is accepted, the supervisor's salary and all of the variable costs, including direct labor, can be avoided. The special equipment used to make the part was purchased many years ago and has no salvage value or other use. The allocated general overhead represents fixed costs of the entire company. If the outside supplier's offer were accepted, only $21,700 of these allocated general overhead costs would be avoided

Required:

1. Prepare a report that shows the financial impact of buying part U67 from the supplier rather than continuing to make it inside the company.
2. Which alternative should the company choose?

Required A

Prepare a report that shows the financial impact of buying part U67 from the supplier rather than continuing to make it inside the company.

Make

Buy

Direct materials

Direct labor

Variable overhead

Supervisor's salary

Depreciation of special equipment

Allocated general overhead

Outside purchase price

Total cost

Required B

Which alternative should the company choose?

The total cost of the "make" alternative is

by

the part.

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