Case
Wild Wadi Co. manufactures the boards they use in their water park.
Their accountant provided you with the following details showing the cost of making 1,800 units a year:
Direct Materials $17,500
Direct labor $ 2,700
Variable overhead $ 2,100
Fixed manufacturing overhead $ 7,400
Total manufacturing costs $29,700
Suppose that China Sports Suppliers Co. offered to sell Wild Wadi similar boards for $14 each delivered. If purchased Wild Wadi would add its own logo at a cost of $0.60 per board. Wild Wadi accountant predicts that purchasing the board will enable the company to avoid $2,600 of fixed costs.
Required:
⦁ Assume that the facilities have no other use, prepare an analysis to show whether Wild Wadi should make or buy the boards.
⦁ Assume the facilities currently used to manufacture those boards can be rented to another company at a rent of $3,000 a year. Perform the analysis again on whether Wild should make or buy.
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