The Paver Corporation produces an executive jet for which it currently manufactures a fuel valve; the...
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The Paver Corporation produces an executive jet for which itcurrently manufactures a fuel valve; the cost of the valve isindicated below:
Cost per Unit Variable costs Direct material $956 Direct labor 643 Variable overhead 306 Total variable costs $1,905 Fixed costs Depreciation of equipment 502 Depreciation of building 186 Supervisory salaries 289 Total fixed costs 977 Total cost $2,882
The company has an offer from Duvall Valves to produce the part for$1,996 per unit and supply 910 valves (the number needed in thecoming year). If the company accepts this offer and shuts downproduction of valves, production workers and supervisors will bereassigned to other areas where, unfortunately, they really are notneeded. The equipment cannot be used elsewhere in the company, andit has no market value. However, the space occupied by theproduction of the valve can be used by another production groupthat is currently leasing space for $56,050 per year.
Should the company make or buy the valve?
The Paver Corporation produces an executive jet for which itcurrently manufactures a fuel valve; the cost of the valve isindicated below:
| Cost per Unit | ||
| Variable costs | ||
| Direct material | $956 | |
| Direct labor | 643 | |
| Variable overhead | 306 | |
| Total variable costs | $1,905 | |
| Fixed costs | ||
| Depreciation of equipment | 502 | |
| Depreciation of building | 186 | |
| Supervisory salaries | 289 | |
| Total fixed costs | 977 | |
| Total cost | $2,882 |
The company has an offer from Duvall Valves to produce the part for$1,996 per unit and supply 910 valves (the number needed in thecoming year). If the company accepts this offer and shuts downproduction of valves, production workers and supervisors will bereassigned to other areas where, unfortunately, they really are notneeded. The equipment cannot be used elsewhere in the company, andit has no market value. However, the space occupied by theproduction of the valve can be used by another production groupthat is currently leasing space for $56,050 per year.
Should the company make or buy the valve?
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