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Unformatted text preview: al watch segment. 12-17 12-18 Example: The Make or Buy Decision The Make or Buy Decision Essex Company manufactures part 4A that is used in
one of its products.
The unit product cost of this part is: When a company is involved in more than one
activity in the entire value chain, it is vertically
integrated. A decision to carry out one of the
activities in the value chain internally, rather
than to buy externally from a supplier is called
a “make or buy” decision.
Depreciation of special equip.
General factory overhead
Unit product cost $ 9
$ 30 12-19 The Make or Buy Decision
The special equipment used to manufacture part
4A has no resale value.
The total amount of general factory overhead,
which is allocated on the basis of direct labour
hours, would be unaffected by this decision.
The $30 unit product cost is based on 20,000
parts produced each year.
An outside supplier has offered to provide the
20,000 parts at a cost o...
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- Winter '10