Mother Hubbard 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. Mother Hubbard Company is considering using some idle facilities to produce the part. The production costs to produce the needed 5,000 parts are as follows: $\begin{array}{ll}
\text { Direct materials } & \$ 17,500 \
\text { Direct labor } & 30,000 \
\text { Variable factory overhead } & 14,000 \
\text { Fixed factory overhead } & 33,500
\end{array}$ The idle facilities could also be rented out at an annual rent of $99,000. All the factory overhead costs are avoidable.
Required: Determine if Mother Hubbard Company should continue to buy the part or produce it in- house.

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The Answer of Mother Hubbard 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. Mother Hubbard Company is considering using some idle facilities to produce the part. The production costs to produce the needed 5,000 parts are as follows: $\begin{array}{ll}
\text { Direct materials } & \$ 17,500 \
\text { Direct labor } & 30,000 \
\text { Variable factory overhead } & 14,000 \
\text { Fixed factory overhead } & 33,500
\end{array}$ The idle facilities could also be rented out at an annual rent of $99,000. All the factory overhead costs are avoidable.
Required: Determine if Mother Hubbard Company should continue to buy the part or produce it in- house.

Mother Hubbard Company Purchases 8,000 Units of a Part That