Author Question: Victory Electronics makes a part used in the manufacture of desktop computers. Management is ... (Read 56 times)

jayhills49 · **on:** Jan 4, 2020

Victory Electronics makes a part used in the manufacture of desktop computers. Management is considering whether to continue manufacturing the part, or to buy the part from an outside source at a cost of $27.00 per part. Victory Electronics needs 80,000 parts per year. The cost of manufacturing 80,000 parts is computed as follows:

Direct materials

$750,000

Direct labour

600,000

Variable manufacturing overhead

525,000

Fixed manufacturing overhead

650,000

Total manufacturing costs

$2,525,000

If Victory Electronics buys the part, it would pay $.40 per unit to transport the parts to its manufacturing plant. Purchasing the part from an outside source would enable the company to avoid 40% of fixed manufacturing overhead costs. Victory Electronics's factory space freed up by purchasing the part from an outside supplier could be used to manufacture another product with a contribution margin of $65,000.

Prepare an analysis to show which alternative makes the best use of Victory Electronics's factory space:

1.	Make the part.

2.	Buy the part and leave facilities idle.

3.	Buy the part and use facilities to make another product.

mcabuhat · **Reply #1 on:** Jan 4, 2020

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