Make or Buy McMurphy Corporation produces a part that is use

Make or Buy:

McMurphy Corporation produces a part that is used in the manufacture of one of its products. The costs associated with the production of 12,000 units of this part are as follows:

                              Direct materials                         $86,000

                              Direct labor                                126,000

                              Variable factory overhead            58,000

                              Fixed factory overhead               138,000

                                    Total costs                          $408,000

Of the fixed factory overhead costs, $55,000 is avoidable.  Conners Company has offered to sell 12,000 units of the same part to McMurphy Corporation for $41 per unit.

Should they accept Conners\' offer? Explain

Solution

Calculate relevant cost ;

They should not accept conner\'s offer