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Answered: - Problem 3 Olympic Products Inc. manufactures and distributes



Problem 3

Olympic Products Inc. manufactures and distributes barbecue grills. The company normally sells 1,000 of these grills each month for a price of $140 each. The material cost for a grill is $44 and the direct labor is $22. The variable overhead cost is $13 per grill, and the fixed overhead cost is $30,000 per month. A contract manufacturer has approached the company and offered to supply the grills ready to sell for $85 each. The company management believes that if it accepts this offer, Olympic Products will be able to lease unused factory space for $10,000 per month.

Perform a make-versus-buy analysis.


Units

 

Outside Buy Price

 

Var mfg exp:

 

Dir Mat

 

Dir Lab

 

Var Mfg OH

 

Fixed Mfg OH

 

Rental Income

 

Total Cost

 


 

Make or Buy decision

 

Make

 

1,000

 


 

Buy

 

$85

 


 

$44

 

$22

 

$13

 


 

$44,000

 

$22,000

 

$13,000

 

$30,000...

 


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DATE ANSWERED

Oct 07, 2020

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