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Howell Corporation_Make or buy

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Question;Howell Corporation produces;an executive jet for which it currently manufactures a fuel valve, the cost of;the valve is indicated below;Cost per Unit;Variable;costs;Direct;material $900;Direct;labor $600;Variable;overhead $300;Total;variable costs $1,800;Fixed;costs;Depreciation;of equipment $500;Depreciation;of building $200;Supervisory;salaries $300;Total;fixed costs $1,000;Total;cost $2,800;The;company has an offer from Duvall Valves to produce the part for $2,000 per unit;and supply 1,000 valves (the number needed in the coming year). If the company;accepts this offer and shuts down production of valves, production workers and;supervisors will be reassigned to other areas. The equipment cannot be used;elsewhere in the company, and it has no market value. However, the space;occupied by the production of the valve can be used by another production group;that is currently leasing space for $55,000 per year.;What;is the incremental savings of buying the valves?

 

Paper#37360 | Written in 18-Jul-2015

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