Acc505 Managerial Accounting: Week 8 (TCO D) Globe Co. manufactures automatic door openers

Acc505 Managerial Accounting
Week 8

(TCO D) Globe Co. manufactures automatic door openers. The company uses 15,000 electronic hinges per year as a component in the assembly of the openers. You have been engaged by Globe to assist with an evaluation of whether the company should continue producing the hinges or purchase them from an outside vendor.
The Accounting Department provided the following detail regarding the annual cost to produce electronic hinges:
Direct materials $54,000
Direct labor 60,000
Variable manufacturing overhead 36,000
Fixed manufacturing overhead 90,000
Total costs $240,000

The Procurement Department provided the following supplier pricing:
Supplier A price per hinge $11.00
Supplier B price per hinge $10.75
Supplier C price per hinge $10.50

The supplier pricing was obtained in response to a formal request for proposal (RFP). Procurement has determined these suppliers meet Globe's technical specifications and quality requirements.
If Globe stops producing the part internally, 10% of the fixed manufacturing overhead would be eliminated.

Prepare a make-or-buy analysis showing the annual advantage or disadvantage (in dollars) of accepting an outside supplier's offer. Should the company buy the parts? If so, from which supplier?
Powered by