Biology Forums - Study Force

Paris Manufacturing Company Inc. uses 400 units of Part #4317 each year in the manufacture of one of its products. The company currently produces the part internally, but an outside supplier has offered to provide the part at a price of $20 per part. If Paris chooses to purchase the part from the outside supplier, one third of it's the fixed manufacturing overhead will be eliminated. The company's standard unit cost of producing the part is listed below.

Direct material	$  8
Direct labor	6
Variable manufacturing overhead	5
Fixed manufacturing overhead	9
Total unit cost	$28

Required:

Ignoring qualitative factors, should Paris continue to make the parts internally or purchase them from the outside supplier? Why?

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