Superior Company manufactures gear model G37, which is used in several of its farm-equipment products....
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Accounting
Superior Company manufactures gear model G37, which is used in several of its farm-equipment products. Annual production volume of G37 is 10,000 units. Unit costs for G37 are as follows:
| Direct materials costs | $55 |
| Direct labor costs | 20 |
| Variable overhead costs | 30 |
| Fixed overhead costs | 18 |
| Total costs | $123 |
Alternatively,
Superior
can purchase gear model G37 from an outside supplier for
$160
per unit. If G37 is outsourced,
Superior
can use the facility where G37 is currently manufactured for production of another gear-model G49. This would save
Superior
$116,000
in facility rental and other costs presently incurred.
Requirement
| Should Superior make or buy G37? By how much willSuperior be better off by choosing your decision rather than the alternative? |
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