Lindon Company uses 4,500 units of Part X each year as a component in the

| June 1, 2016

Question
) Lindon Company uses 4,500 units of Part X each year as a component in the assembly of one of its products. The company is presently producing Part X internally at a total cost of $69,000 as follows:

Direct materials

$16,000

Direct labor

18,000

Variable manufacturing overhead

10,000

Fixed manufacturing overhead

25,000

Total costs

$69,000

An outside supplier has offered to provide Part X at a price of $11 per unit. If Lindon stops producing the part internally, one third of the manufacturing overhead would be eliminated.
Required: Prepare a make-or-buy analysis showing the annual advantage or disadvantage of accepting the outside supplier’s offer.

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