Please describe the circumstances of the following case studyand recommend a course of action.
Explain your approach to the problem, perform relevantcalculations and analysis, and formulate a recommendation.
Ensure your work and recommendation are thoroughlysupported.
Case Study: A vacuum manufacturer has prepared the followingcost data for manufacturing one of its engine components based onthe annual production of 50,000 units.
Description Cost per Month
Direct Materials $75,000
Direct Labor   $100,000
Total   $175,000
In addition, variable factory overhead is applied at $7.50 perunit. Fixed factory overhead is applied at 150% of direct laborcost per unit. The vacuums sell for $150 each. A third party hasoffered to make the engines for $60 per unit. 75% of fixed factoryoverhead, which represents executive salaries, rent, depreciation,and taxes, continue regardless of the decision. Should the companymake or buy the engines?
Articulate the approach to solving the problem, including whichfinancial information is relevant and not relevant.
Correctly conclude on whether the company should make or buy theengines.
Propose other factors that should be considered when making thisdecision and elaborate on whether or not those factors do or do notsupport the decision.
