Make-or-Buy Decisions
{"Image DocumentName": "Make-or-Buy Decisions", "Image ImageDescription": "LO4. Make-or-Buy Decisions. Direct costs: Direct materials. Labor. Variable overhead. Fixed overhead. Common costs. Total costs.   5, ,000. 3,000. 4, ,000b.  34,000.  25,000a. -0-  35,000. Process. prints. 100,000.  20,000 higher. 12,000 lower. 3,000 lower. 4,000 lower.   1,000 higher. Outsource. processing. Difference. Differential costs, those costs that will differ between alternatives, the status quo and outsourcing, are materials, labor, and variable overhead. These costs will be saved by outsourcing the processing of the prints. The direct fixed cost is the cost of leasing the machine to process the prints. If U-Develop stops processing the prints they do not have to lease the machine. Because this cost can be eliminated, it is also differential. The common costs, however, remain unchanged. Therefore, these costs could be omitted from the analysis. In addition, a differential cost is the  25,000 purchase price of the outsourcing. This analysis shows us that differential costs increase by  1,000 if U-Develop buys the prints. Therefore, the manager would decide to continue processing prints. a 100,000 units purchased at  0.25 =  25,000. b These common costs remain unchanged for these volumes. Because they do not change, they could be omitted from the analysis. Differential costs increase by  1,000, so reject. alternative to buy", "Image XResolution": "37", "Image YResolution": "37", "Image ResolutionUnit": "Pixels/Centimeter", "Image Software": "SlidePlayer", "Image YCbCrPositioning": "Centered"}