Explore BrainMass

Explore BrainMass

    Make versus Buy for Bulan Inc

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    3. (TCO D) Bulan Inc. makes a range of products. The company's predetermined overhead rate is $20 per direct labor-hour, which was calculated using the following budgeted data:
    Variable manufacturing overhead................. $140,000
    Fixed manufacturing overhead..................... $560,000
    Direct labor-hours....................................... 35,000
    Component T6 is used in one of the company's products. The unit product cost of the component according to the company's cost accounting system is determined as follows:
    Direct materials............................................. $ 45.00
    Direct labor.................................................. 32.00
    Manufacturing overhead applied.................... 40.00
    Unit product cost.......................................... $117.00
    An outside supplier has offered to supply component T6 for $101 each. The outside supplier is known for quality and reliability. Assume that direct labor is a variable cost, variable manufacturing overhead is really driven by direct labor-hours, and total fixed manufacturing overhead would not be affected by this decision. Bulan chronically has idle capacity.
    Required: Is the offer from the outside supplier financially attractive? Why?

    © BrainMass Inc. brainmass.com June 3, 2020, 7:19 pm ad1c9bdddf
    https://brainmass.com/business/accounting/make-versus-buy-bulan-inc-93631

    Attachments

    Solution Summary

    The solution explains how to evaluate a make or buy decision.

    $2.19

    ADVERTISEMENT