Question

Flint Industries incurs unit costs of $7 ($4 variable and $3 fixed) in making an assembly part for its finished product. A supplier offers to make 16,800 of the assembly part at $5 per unit. If the offer is accepted, Flint will save all variable costs but no fixed costs. Prepare an analysis showing the total cost saving, if any, Flint will realize by buying the part.

Answer 1

It is more convenient to keep making them in house. The fixed costs are sunk costs.

Step-by-step explanation:

Giving the following information:

Flint Industries incurs unit costs of $7 ($4 variable and $3 fixed) in making an assembly part for its finished product. A supplier offers to make 16,800 of the assembly part at $5 per unit. If the offer is accepted, Flint will save all variable costs but no fixed costs.

Make in house= $4*16,800= 67,200

Buy= 5*16,800= 84,000

It is more convenient to keep making them in house. The fixed costs are sunk costs.