Make-or-Buy Decision. Standard costs and other data for two component parts used by Griffon Electronics are presented below:
Direct materials . Direct labor . Factory overhead .
Unit standard cost. .
Units needed per year . Machine hours per unit . Unit cost if purchased .
In past years, Griffon Electronics has manufactured all of its required components; however, in 19- only 30,000 hours of otherwise idle machine time can be devoted to the production of components. Accordingly, some of the parts must be purchased from outside suppliers. In producing parts, factory
overhead is applied at $1 per standard machine hour. Fixed capacity costs, which will not be affected by any make-or-buy decision, represent 60% of the applied factory overhead.
The 30,000 hours of available machine time are to be scheduled so that
Griffon realizes maximum potential cost savings.
Required: (1) The relevant unit production costs to be considered in the make-or-buy decision to schedule machine time.
(2) The units of A4 and B5 that Griffon should produce if the allocation of machine time is based on potential cost savings per machine hour.