Outsourcing Decision
SE 3. Marc Company assembles products from a group of interconnecting parts. The company produces some of the parts and buys some from outside vendors. The vendor for Part X has just increased its price by 35 percent, to $10 per unit for the first 5,000 units and $9 per additional unit ordered each year. The company uses 7,500 units of Part X each year. Unit costs if the company makes the part are as follows:
| Direct materials | $3.50 |
| Direct labor | 2.00 |
| Variable overhead | 4.00 |
| Variable selling costs for the assembled product | 3.75 |
Should Marc continue to purchase Part X or begin making it?
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