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London, Inc. uses 2,000 units of Part 8G3 each year in the manufacture of one of its products. The ...

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London, Inc. uses 2,000 units of Part 8G3 each year in the manufacture of one of its products. The ...

London, Inc. uses 2,000 units of Part 8G3 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 $15 per part. If London chooses to purchase the part from the outside supplier, one half of it's the fixed manufacturing overhead will be eliminated. London's standard unit cost of producing one unit of the part is listed below.

Direct material	$ 6
Direct labor	4
Variable manufacturing overhead	2
Fixed manufacturing overhead	4
Total unit cost	$16

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

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Managerial Accounting

Edition: 4^th

Author: Davis

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