This posting addresses buy vs. make decisions for Pepso Co.
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Pepsi Company purchases 8,000 units of a part that it needs for production of its product. Notification has just been received from the supplier that a price increase will take effect shortly, which will bring the price of each part to $25. Pepsi Company is considering using some idle facilities to produce the part. The production costs to produce the needed 8,000 parts are as follows:
Direct materials $17,500
Direct labor 30,000
Variable factory overhead 14,000
Fixed factory overhead 33,500
The idle facilities could also be rented out at an annual rent of $99,000. All the factory overhead costs are avoidable.
Determine if Pepsi Company should continue to buy the part or produce it in-house.
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Pepsi Company purchases 8,000 units of a part that it needs for production of its product. Notification has just been received from the supplier that a price increase will take effect shortly, which will bring the price of each part to $25. Pepsi Company is considering using some idle facilities to produce the part. The production costs to produce the needed ...
Purchase this Solution
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