Busby Company needs 10,000 units of a certain part to use in its production cycle. The following information is available: If Busby buys the part from Thurco instead of making it, Busby could not use the released facilities in another manufacturing activity. However, twenty percent of the fixed overhead would be avoided because one of the supervisors could be let go.
(a) In deciding whether to make or buy the part, what are the relevant costs that Busby must consider.
(b) What decision should Busby make?

Question

Busby Company needs 10,000 units of a certain part to use in its production cycle. The following information is available:  If Busby buys the part from Thurco instead of making it, Busby could not use the released facilities in another manufacturing activity. However, twenty percent of the fixed overhead would be avoided because one of the supervisors could be let go.
(a) In deciding whether to make or buy the part, what are the relevant costs that Busby must consider.
(b) What decision should Busby make?

Quizplus · Accepted Answer

The Answer of Busby Company needs 10,000 units of a certain part to use in its production cycle. The following information is available:  If Busby buys the part from Thurco instead of making it, Busby could not use the released facilities in another manufacturing activity. However, twenty percent of the fixed overhead would be avoided because one of the supervisors could be let go.
(a) In deciding whether to make or buy the part, what are the relevant costs that Busby must consider.
(b) What decision should Busby make?

Busby Company Needs 10,000 Units of a Certain Part to Use