MA73 Problem: Relevant Costing – Make or Buy - Todders Ltd.

MA73 Problem: Relevant Costing – Make or Buy - Todders Ltd.

Todders Ltd. currently purchases a part required in its manufacturing process for $17.00 per unit.In addition to the purchase price of $17.00, Todders Ltd. incurs ordering, receiving andinspection costs of $2.50/unit. Todders is considering making the part, and to that end hasestimated costs per unit as follows:Direct materials $5.75 / unitDirect labour $10.00 / unitVariable overhead $1.50 / unitIncrease in fixed manufacturing overhead $30,000Todders Ltd.’s annual requirement of this part is 30,000 units.Required:1. Should Todders produce this unit or purchase externally? What is the net benefit toTodders Ltd.?