Chapter 12 Full Student Version [Read-Only]

12 17 12 18 example the make or buy decision the make

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

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 than to buy externally from a supplier is called a “make or buy” decision. “make Direct Direct materials Direct labour Variable overhead Depreciation of special equip. Supervisor's salary General factory overhead Unit product cost $ 9 5 1 3 2 10 $ 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 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...
View Full Document

Ask a homework question - tutors are online