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Make or Buy decision at Nantucket Nectars

Assume that Nantucket Nectars reports the following costs to make 17.5 oz. bottles for its Juice
Cocktails:

Nantucket Nectars Company
Cost of Making 17.5-Ounce Bottles

Total Cost for 1,000,000 Bottles Cost per Bottle
Direct materials $80,000 $0.08
Direct labor 30,000 0.03
Variable factory overhead 60,000 0.06
Fixed factory overhead 85,000 0.085
Total costs $255,000 $0.26

Another manufacturer offers to sell Nantucket Nectars the bottles for $.25. The capacity now used to make bottles will become idle if the company purchases the bottles. Further, one supervisor with a salary of $60,000, a fixed cost, would be eliminated if the bottles were purchased. Prepare a schedule that compares the costs to make and buy the 17.5 oz. bottles. Should Nantucket Nectars make or buy the bottles?

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Make or Buy at Nantucket Nectars
Assume that Nantucket Nectars reports the following costs to make 17.5 oz. bottles for its Juice
Cocktails:

Nantucket Nectars Company
Cost of Making 17.5-Ounce Bottles

Total Cost for 1,000,000 Bottles Cost per Bottle
Direct materials $80,000 $0.08
Direct labor ...

Solution Summary

This solution is comprised of a detailed explanation to answer should Nantucket Nectars make or buy the bottles.

$2.19