Victoria Technologies Makes a Part Used in the Manufacture of Digital

Victoria Technologies makes a part used in the manufacture of digital cameras. Management is
considering whether to continue manufacturing the part, or to buy the part from an outside source at a cost of $24.00 per part. Victoria Technologies needs 60,000 parts per year. The cost of manufacturing 60,000 parts is computed as follows:

If Victoria Technologies buys the part, it would pay $.60 per unit to transport the parts to its manufacturing plant. Purchasing the part from an outside source would enable the company to avoid 50% of fixed manufacturing overhead costs. Victoria Technologies' factory space freed up by purchasing the part from an outside supplier could be used to manufacture another product with a contribution margin of $70,000.
Prepare an analysis to show which alternative makes the best use of Victoria Technologies' factory space:1)Make the part
2)Buy the part and leave facilities idle
3)Buy the part and use facilities to make another product

Correct Answer:

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