The management of Villanueva Industries has been evaluating whether the company should continue manufacturing a component or buy it from an outside supplier. A $100 cost per component was determined as follows:
Villanueva Industries uses 4,000 components per year. After Splendor, Inc., submitted a bid of $80 per component,
some members of management felt they could reduce costs by buying from outside and discontinuing production of the component. If the component is obtained from Splendor, Inc., Villanueva's unused production facilities could be leased to another company for $50,000 per year.
Required:
a. Determine the maximum amount per unit Villanueva should pay an outside supplier.
b. Indicate if the company should make or buy the component and the total dollar difference in favor of that alternative.
c. Assume the company could eliminate production supervisors with salaries totaling $30,000 if the component is purchased from an outside supplier. Indicate if the company should make or buy the component and the total dollar difference in favor of that alternative.

Question

The management of Villanueva Industries has been evaluating whether the company should continue manufacturing a component or buy it from an outside supplier. A $100 cost per component was determined as follows:
  Villanueva Industries uses 4,000 components per year. After Splendor, Inc., submitted a bid of $80 per component,
some members of management felt they could reduce costs by buying from outside and discontinuing production of the component. If the component is obtained from Splendor, Inc., Villanueva's unused production facilities could be leased to another company for $50,000 per year.
Required: 
a. Determine the maximum amount per unit Villanueva should pay an outside supplier.
b. Indicate if the company should make or buy the component and the total dollar difference in favor of that alternative.
c. Assume the company could eliminate production supervisors with salaries totaling $30,000 if the component is purchased from an outside supplier. Indicate if the company should make or buy the component and the total dollar difference in favor of that alternative.

Quizplus · Accepted Answer

The Answer of The management of Villanueva Industries has been evaluating whether the company should continue manufacturing a component or buy it from an outside supplier. A $100 cost per component was determined as follows:
  Villanueva Industries uses 4,000 components per year. After Splendor, Inc., submitted a bid of $80 per component,
some members of management felt they could reduce costs by buying from outside and discontinuing production of the component. If the component is obtained from Splendor, Inc., Villanueva's unused production facilities could be leased to another company for $50,000 per year.
Required: 
a. Determine the maximum amount per unit Villanueva should pay an outside supplier.
b. Indicate if the company should make or buy the component and the total dollar difference in favor of that alternative.
c. Assume the company could eliminate production supervisors with salaries totaling $30,000 if the component is purchased from an outside supplier. Indicate if the company should make or buy the component and the total dollar difference in favor of that alternative.

The Management of Villanueva Industries Has Been Evaluating Whether the Company